Oil and Gas Investment in East Africa

The recent discoveries of oil and gas in commercially-viable quantities in East Africa have attracted international attention and are expected to contribute greatly to the growth of the economies of these countries.

=Uganda= Uganda is one of the new hotspots for the international oil and gas industry. Currently, the country’s proven crude oil reserves stand at 2.5 billion barrels. The first commercially-viable oil discovery in Uganda was made in the Lake Albert Rift Valley in 2006. The valley is about 500 kilometres long and up to 45 kilometres wide. It forms Uganda’s western border with the Democratic Republic of the Congo (DRC) and stretches from Lake Edward in the south to the border with South Sudan in the north. It is not likely that all of Uganda’s two billion barrels of proven oil reserves will be extracted because, as an oil well, empties it becomes harder and, therefore, uneconomic to extract the remaining reserves. Recently the government announced that from the currently discovered resources 1 billion barrels can be extracted, adding that it was possible for more hydrocarbons to be discovered in future. At the moment, Uganda does not produce any hydrocarbons. Setting Uganda’s oil reserves in a global context, one or two billion barrels represent a big find for Uganda—enough, to supply domestic needs for at least 20 years while selling a significant surplus overseas—but it is not a really big find for the world beyond. Saudi Arabia, for example, currently has 263 billion of proven reserves. The United Kingdom-based Tullow, Paris-based Total, and the China National Offshore Oil Corporation (CNOOC) are leading exploration and development activities in the country. Small-scale oil production may begin within the next few years to power local electricity plants. However, since Uganda does not have a refinery or an export crude oil pipeline, full-scale oil production will depend on when the infrastructure would be put in place.

=Kenya= Following the oil discoveries in Uganda and recent gas discoveries in offshore East Africa the interest in the Kenya upstream oil and gas sector has intensified significantly. In March 2012, Tullow Oil and its partners announced the discovery of oil in Kenya’s Tertiary Rift Basin. In January 2014, Tullow made two more significant discoveries of oil in Kenya, which doubled its Kenyan resource estimate. Tullow Oil’s 2014 annual report states that the company planned to make a final investment decision on the development of its findings in Kenya by late 2016. However, the drop of the oil prices led to a reduction of Tullow’s activities in the country. The drop also forced other countries to withdraw completely from oil exploratory activities in Kenya. Kenya plays a critical role, as a transit country, for its neighbouring countries depend on the crude oil and petroleum products imported through Kenya’s Mombasa Port. In addition, the Mombasa refinery is one of the largest crude oil refineries in East Africa with a capacity of 90,000 barrels per day. In August 2015, Kenya and Uganda agreed on the construction of a crude oil export pipeline. The pipeline will convey oil from Uganda and Kenya to Kenya’s northern Lamu Port. The pipeline construction project is estimated to cost between $2.5 billion and $5 billion. It will have a minimum capacity of conveying 300,000 barrels per day (b/d).

=Tanzania= Tanzania does not produce or have any proven oil reserves but in recent years major findings of natural gas have been made in offshore Tanzania. The exploration of oil and gas in Tanzania started in 1952, but the first discovery of natural gas was not made until 1974 at Songo Songo. In 1982, the second discovery was made in Mtwara region at Mnazi Bay. Since 2010 the country witnessed a series of offshore natural gas discoveries that have boosted Tanzania’s potential of becoming a natural gas exporter in future. Moreover, the country expects to increase natural gas production in the coming years from the Mnazi Bay Concession. In mid-2015 the construction of a pipeline from Mnazi Bay to Dar es Salaam was completed. The gas is being used to fire new gas plants in the area that are supposed to decrease the cost of energy in the country and increase the reliability of power supply.

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