Monday, April 2, 2012

KENYA OIL FIND AND IT’S IMPACT ON UGANDA

Last week Kenya announced it had discovered oil in the desolate Turkana area in the country’s northwestern region, throwing up ugly regional chest thumping that was not only uncalled for but missed the point of regional integration entirely.

Tullow’s Kenyan unit struck oil at a depth of about 1,000 meters. The company has a licence to prospect in an area over 67,000sqkm or about six times the size of the licences in Uganda.

“The oil that was discovered in Uganda is much lower than what has been discovered in Kenya,” Energy minister Kiraitu Murungi said, speculating that the deposits could be more than the hundreds of millions of barrels discovered in the neighbouring country.

"Of course minister Murungi is an honourable man and will be forgiven for being over effusive in his assessment of Kenya’s prospects, but any oil man worth his salt knows you cannot make such sweeping statements after drilling only one well....
In the earlier part of the last century around 1925, twenty seven oil wells were drilled in western Uganda. Oil was discovered but commercial viability could not have been determined at the time. They plugged up the wells and went away.

Uganda has determined commercial viability now after 63 wells have been drilled.
Some Ugandans have suddenly got into their heads that now that the Kenyans have discovered oil the long term viability of our own oil industry has been put in jeopardy.

Their argument suggests that because of the new find interest in Uganda’s proven reserves will wane when viewed against the less than certain results of the Kenyan wells.

To put the Kenyan find in perspective the Ngamia-1 oil well puts Kenya where we were at the beginning of the last decade a less charitable assessment actually suggests that they are where we were in 1925.

Ugandan experts suggest that Kenya’s development if fast tracked will be where Uganda is today in a minimum of three years.

All the above not withstanding we are not in competition with Kenya. Just as southern Sudan remained unbothered about our finds.

Going by current confirmed reserves of around two billion barrels it is expected that at the peak of our production that we will be drawing up to 200,000 barrels a day. Currently Uganda’s oil demand stands at about 34,000 barrels a day and regional demand many times over. A recent study said that by 2015 regional demand would have jumped almost fourfold to 37 million tons from ten million tons in 2010.

And these estimates are based on known demand, suppressed demand – that demand that only shows up when supplies have been established, may push these figures much higher.

"A real concern for Uganda may be if Kenya reneges on a deal signed in around 2007, which mooted the regional development of a second refinery to be located in Uganda. Uganda’s waxy oil dictates that if we built a pipeline to the coast for instance it would require heating to keep the oil flowing, with our irregular power supplies this could prove a challenge....

The commercial viability of a refinery has been established and with or without regional help we should be able to set it up ourselves. It is in our strategic interests to refine our own oil, capturing all the value that come with refining.

Not only may we be able to produce petrol, diesel, kerosene and aviation fuels the oil byproducts have uses in the pharmaceutical, plastics and cosmetic industries.

What would be useful for the region would for each of us to put aside our parochial interest and work at maximizing the leverage to the region that these new heaven sent bounties can afford us.

For example we might want to develop them together, maybe each country should take out equity in each others projects. This way we can guarantee each others markets for the projects, extract more value from our resources and attract credible investors.

If this region becomes an oil and gas producing region – Tanzania, Rwanda and Mozambique are far along the way to developing their own natural gas resources, we can begin to punch above our weight if well utilized. And that is where the focus should lie not in nursery ground my-daddy-is-stronger-than-your-daddy antics.

2 comments:

  1. Good article Sir / Madam. It is high time we talked in terms of East Africa and not in terms of individual countries. Cooperation and not competition is the paradigm we must espouse if we are going to develop fast as a region. Hope our leaders can have such a vision.

    ReplyDelete
  2. so if they had determined commercial viability two years ago, why drill an additional 40 wells. see story http://www.businessdailyafrica.com/Tullow-puts-development-of-Kenya-oil-fields-on-fast-track/-/539552/2205424/-/143rk1v/-/index.html

    ReplyDelete