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East African Oil & Gas Exploration

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About one and half decades ago, the East African region was regarded as the Cinderella of the international oil exploration sector. The region certainly held many interesting prospects, especially for gas discoveries, but logistics and the perceived lack of both domestic and export markets dampened investor interest.

Today, the United States Geological Survey estimates that there are more gas reserves offshore of Mozambique, Tanzania and Kenya than in West Africa. This East African gas is ideally placed to serve export markets in Asia. Some 180 trillion cubic feet of gas has been discovered in Mozambique’s offshore Rovuma Basin. This is sufficient gas to supply Italy, France, Britain and Germany’s needs for about 18 years, although its export markets will be eastwards rather than westwards.

Security Problems

Security issues also halted much oil and gas exploration. South Sudan sits astride Africa’s third-largest oil reserves. Discoveries of oil in South Sudan’s Muglad and Melut basins in the 1970s took more than 25 years to develop, largely because of ongoing civil war between the north and south of the then unified country. In addition, there is an ongoing conflict in South Sudan between the Dinka and Nuer tribes.

The death of foreign exploration personnel in 1984 forced oil companies to shut down their operations in 1984. Work did not resume until the nid-1990s, when first Canadian and then Chinese and Malaysian investors came to Sudan to develop the fields.

Today, South Sudanese oil production of 160,000 barrels per day is less than one half of its level three years ago, when the country gained independence. The oilfields are surrounded by a variety of militias that apparently are financed by Khartoum. In addition, there is an ongoing dispute between Khartoum and the South Sudan government in Juba about oil transit fees through the oil pipeline to Port Sudan.

This has triggered the notion of constructing a new oil export pipeline through Uganda and Kenya, where it could tap into other oil discoveries in these two countries and any future ones from Ethiopia, from which a feeder line could be built. But such a pipeline also faces security risks because of ongoing internal conflicts in north Uganda and attacks by Islamists groups moving from Somalia.

Taxation and Institutions

However, the development of oil discoveries in western Uganda has also been affected for some years because of disputes over taxation between the oil companies and the government. Disputes between companies and governments about contractual terms are also ongoing in other countries, largely because of internal political rivalries and weak national institutions.

Furthermore, a number of Ugandan politicians support the idea of building an oil refinery in the western Ugandan rift region, a remote area with a small population. Such a refinery would never be economically feasible but could, the politicians believe, lead to regional development.

The upshot has been that a number of oil companies have quit their licences in Uganda, as they feel they cannot be developed in an economically feasible manner.

Gas Exports

Nevertheless, countries such as Mozambique and Tanzania will be the first to export their gas, even though the development process may take 10 to 15 years and must overcome substantial hurdles.

These countries have neither the infrastructure nor the technical know-how to develop the sector. There are talented technical individuals in both countries working for government agencies — just not enough of them.

The East African gas supplies also must be integrated into a domestic grid, where they can be used to power electricity generation. At present only about 15 per cent of the Tanzanian population has any access at all to electricity.

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