Oil & Gas Africa: Kenya Emerges As East Africa’s Powerhouse
As a frontier market, the countries of Africa represent both tremendous opportunities and tremendous risks. On the risk side of the ledger are all the usual complications of international trade and investment compounded by the problems inherent in a developing, emergent continental market consisting of 54 countries and 1.1 billion people – it’s a lot to keep track of.
Luckily, the ups and downs of the African oil and gas trade aren’t one of them if you know where to look. To help with that, AFKInsider has compiled all the news you need to know now in order to slim down your risk in the weeks ahead. Let’s see what’s happening out there.
Tullow Oil Expands Kenyan Finds
In this first AFKInsider look into the world of African oil and gas, where better to start than in the emerging East African oil play of Kenya? Here, oil exploration is heating up as both small independent companies and the international oil majors expand their presence in a province long ignored by the industry. That’s changing though, and fast.
First, Tullow Oil has discovered more oil at its operated blocks in Kenya’s eastern Lokichar Basin. The Basin is part of the East African Rift system, a long line of geologic faults where plate tectonics is working to tear the eastern portion of Africa away from the rest. The area in Kenya now being worked by Tullow saw a small discovery in 1992, but low prices made development uneconomic.
With prices now consistently over $100 per barrel due to declines at existing fields, ongoing conflict in the Middle East, and the exploding cost of offshore oil and gas exploration, onshore Africa is being given a second look and in 2012 Tullow and partner Africa Oil made several large discoveries in the Lokichar that the two companies are nearly certain holds at least 600 million barrels of oil.
Since then additional work has been carried out to appraise the extent of the finds and the most recent drilling by Tullow there carried out this summer has discovered an additional 920 net feet of oil at three sites.
This is important because the more column feet of oil or gas a wellbore penetrates the more oil there is and the easier it is to extract and send to market. Even more important, Lokichar crude is the “light and sweet” variety meaning it is relatively pure oil lacking impurities and can be readily and easily refined.
An East African Oil Powerhouse
Combine Kenya’s oil with the large discoveries made in Uganda and South Sudan’s existing fields, and East Africa could easily house upwards of 3.0 billion barrels of oil or more, all which will need a way to reach consumers.
Luckily, Kenya is extremely well placed for that as well with its LAPSSET project, an ambitious plan to develop a transport corridor from the new port of Lamu through to Garissa, Isiolo, Mararal, Lodwar and Lokichoggio to branch at Isiolo to Ethiopia and Southern Sudan.
LAPSSET will comprise of a new road network, a railway line, an oil refinery at Lamu, an oil pipeline, and is being touted as the transport backbone that, once fully developed, will open up much of Northern Kenya and surrounding countries to global trade.
The Lamu port portion of the project and the pipeline—the two most important parts from an oil perspective—is expected to cost around $10 billion, though foreign investment for the pipeline is a likely prospect.
Right now development of both the Lokichar Basin fields and the transport infrastructure to get the oil to market are in the early, preliminary stages, but if near-term obstacles are overcome Kenya could see oil start being pumped and exported as early as 2017 or 2018.
With some of the country’s test wells pumping 5,000 to 6,000 barrels of oil per day, once production starts Kenya could soon see up to $1.8 billion of its own crude being produced from onshore annually—not to mention that which may be discovered offshore and which will flow through it from Uganda and South Sudan.
So, when looking for an oil and gas play in Africa to sink your teeth into, consider Kenya. The country has got a lot of very valuable crude oil, several neighbors who need a way to get their own crude to market, and a port that will soon be a new nexus of the oil trade for all points east of the Suez Canal, including the thirsty Asian giants India and China. From an investment perspective, an onshore opportunity like this is not likely to come again anytime soon.
Jeffrey Cavanaugh holds a Ph.D. in political science with a specialization in international relations from the University of Illinois at Urbana-Champaign. Formerly an assistant professor of political science and public administration at Mississippi State University, he writes on global affairs and international economics for AFK Insider and Mint Press News.
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