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| Oil Exploration Blocks: Government of Kenya |
Kenya News -- A thoroughly done article appearing on wsj.com
“Fall in Oil Prices Threatens Africa’s Economic Growth” seems to suggest that
the plummeting oil prices are detrimental to Africa’s economic progress. The article done by three authors based in
Abuja, Johannesburg, and Nairobi pointed
out that Africa had recently witnessed a boom in oil and gas discoveries and
which many nations have pegged on to formulate strategies for economic
prosperity and, therefore, dipping oil prices was bad news for the continent’s economic
scene.
The article was quick to quote the billions of dollars that
have been pumped into oil and gas exploration projects and such projects, for
instance, the $16 billion oil project in Angola by Exxon Mobil and Total SA,
would only be profitable if oil prices averaged more than $70 a barrel. To put this in context, 60% of big oil finds
in the recent past have all be in Africa. Currently Africa has 130 billion barrels
of crude oil and more than 500 companies planning to tap it. More finds are
expected with the increased exploration activities.
In a rather devastating development for produces, the price
of oil has been going down and now it has hit a five-year low. On Thursday, the price of crude oil had
dropped to $63.68 as reported by the Citi group. Here is a closer look at
Kenya, Uganda, and Nigeria.
Kenya
Kenya has recently made viable oil discoveries but this is
far from production. Unlike other promising economies in Sub-Saharan Africa,
Kenya has not benefited from oil or mineral exports. The country has a
diversified economy with agriculture, Manufacturing, service industry, and
tourism proving to be more important to the Country’s economic wellbeing. In
fact, mining and quarrying only contribute about 1% of the country’s GDP. Kenya’s growth is mostly secured by sound
macroeconomic policies.
After rebasing
its GDP, Kenya is now Africa’s 9th largest economy in Africa and has
joined the ranks of a lower middle income country.
As with Uganda, Kenya has an economic blueprint called
Vision 2030, which outlines plans and strategies for the nation to attain
industrialized status by 2030.
As stated earlier Kenya has made impressive oil finds in the
past three years. As stated here
in the Huffingtonpost, oil findings in Kenya has made it “the hottest and
fastest-paced hydrocarbon scene on the continent.” Oil deposits have already
been confirmed in the Anza and South Lokichar basins which total to about 2.9
billion barrels. Other un-explored
basins like Ogaden and Kerio are estimated to have upwards of 7billion barrels.
The country has several other onshore
and offshore blocks where exploration activities or plans are underway. Simply
put, Kenya is the busiest oil exploration scene on the continent. However, the
sweetest part of the oil news is kept with government and business circles as
the government is keen on controlling euphoria which might politicize the
resource. What Kenyans know is that their oil is far from commercial viability.
Although Kenya is at the center of the $24.5 billion LAPSSET project, the initial
plan was aimed at tapping into resources of neighboring South Sudan and
Ethiopia by helping them access the Indian Ocean. However, the new oil finds in
the country has led to some refocusing. With the promising finds, the country is
already finalizing plans of massive infrastructure projects, mostly in
conjunction with Uganda. Currently, there are discussions to develop a pipeline
from Uganda to Lamu and save Uganda the agony of building a refinery for its
oil.
While Uganda first discovered oil
in 2006, progress has been slow and production is slated for 2017. In contrast,
commercial viability of Kenya’s oil was only confirmed in early 2014 and
production is slated for 2016.
Therefore, apart from the good feeling that comes with
the knowledge that you have oil within your borders, Kenya has not achieved any
gains from oil or has it implemented any large scale project to tap into the
resource. Foreign companies might be rushing in to set shop in anticipation of
a thriving oil economy but this cannot be independently verified.
What is clear
is that reduced oil prices have marginally reduced the cost of doing business
and a reduction in the prices of basic commodities is also expected. The reduction also reduces the cost of
importing oil and thus helps the Shilling to stabilize.
Uganda
Uganda has 3.5
billion barrels of confirmed oil deposits. Recent estimates put the figure to
be as high as $6.5 billion barrels, though recoverable oil remains at a lowly
1.4 Billion barrels. Several Companies, including Tullow Oil PLC and China’s
Cnooc LTD are implementing a $15 billion plan to develop Uganda’s oil fields.
There are fears that these Companies may slow down or halt their plans if the
oil prices continue to fall.
There is a
lot of excitement in the country as it looks to launch the development of
needed infrastructure in 2015 and, hopefully, commence production by 2017.
Uganda has an economic blueprint dubbed vision 2040. The
economic blueprint, if followed to the letter, will transform the country from
peasantry to a modern prosperous middle income country by 2040. Uganda does
look at the oil find as the silver bullet that will propel it to a higher
economic status, but if the resource is well-managed then it could give the
country the much-needed boost. Jointly with other countries in the region,
Uganda is working on a plan to develope huge infrastructural projects include railways, roads, and
an oil pipeline which are part of the LAPSSET. Will the continued fall in oil
prices affect Uganda’s economic ambitions? You be the judge but here is a clue –
Just like Kenya, Uganda currently imports all of its oil. Spending less on
importation is important for the country cut inflation.
Nigeria
Nigeria is looked at by Kenya and Uganda as a model oil
producing country at it’s necessary to mention it here. Nigeria is Africa’s
biggest economy and biggest oil producer on the continent, drilling about
100,000 barrels of crude oil a day. With the current expansion in
telecommunications, retail and other sectors of the economy, oil only
contributes about 14% of economic activity.
However, up to 70% of the
government’s budget comes from oil. This implies that public institutions and infrastructural
projects depend disproportionately on the oil, compared to other sectors of the
economy. In fact the naira (Nigeria’s
currency) has fallen to a record low in response to oil price related shocks. Nigeria
is racing against time to develop infrastructure for its huge population. There
is no doubt that the falling oil prices will affect the Nigerian economy in the
long run. If the situation doesn’t resolve in the near future then the
government might be forced to put on hold plans to double the Country’s oil
production and preserve the precious commodity for a more opportune time.
Verdict
As for now Kenya and Uganda do not depend on revenues from
oil to meet their budgetary requirements. Reduced oil prices are benefiting them
directly. The future of the still looks bright because OPEC will do what they
have always done (cut production) for the prices to shoot again. Even so, the
demand for oil is still growing and there is every indication that the forces
will shift.
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