Future of the oil & gas boom of East Africa - CNBC Africa

Future of the oil & gas boom of East Africa

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Oil pump jacks in silhouette at sunset. PHOTO: Tullow Oil

Bill Page, an energy and resource leader at Deloitte Consulting Limited, believes that skills development, in the broadest possible sense, is a key factor in advancing and developing the sector. 

FUTURE OF EAST AFRICAN GAS & OIL SECTOR 

“If there was one big threat that I would identify to the future of the oil and gas industry in East Africa, it’s a shortage of skills – the skills of people in oil and gas companies, in the relevant ministries, the tax authorities as well as people working in the consulting organisations,” Page told CNBCafrica.com. 

“Capacity-constraint is the thing that is most likely to cause projects to slow down. There is no history in the industry here, there are very few people with the knowledge and the experience. A lot has been done to train people but even the people who have been trained are a small number compared to the size of the potential opportunity.” 

According to a report by Deloitte on oil and gas in East Africa, Kenya has four prospective sedimentary basins, Tanzania has two small producing gas fields as well as a number of promising gas discoveries and Uganda boasts a series of successful oil wells. 

Page feels that in order to truly reap the benefits of these discoveries, it would be unwise for the region, as a whole, to overinvest in bringing in skills from outside East Africa.

“Whilst you can bring in capacity from outside the region, that’s expensive to do and that has an impact on project economics. More importantly, both government and the international oil and gas companies recognise that building local capacity and local content is a critical part of protecting their social license to operate,” he explained. 

“You can see in Nigeria some bad examples of what happens if local communities don’t feel that they’re proficiently involved in the oil and gas industry. We’ve already had one unpleasant event in Tanzania in the last year. For the companies as well as the government, if you want to see the real benefits from this, there is a lot that needs to be done to develop capacity.” 

THE PRODUCTION OF GAS 

He added that while the oil and gas industry itself boats a lot of potential, it is still very new and is mainly in an exploration and development phase at the moment. 

“There has been a little gas production in Tanzania since 2004 but the major discoveries have only been made in the last two or three years, in Uganda – major discoveries since 2006 but no production yet. In Kenya, the offshore oil discoveries have only been made within the last 18 months so it is very new,” Page indicated. 

REGULATING THE INDUSTRY 

“There are lots of regulatory issues, tax issues, infrastructure issues, capacity issues – all of which need to be addressed. It’s not like Nigeria, which has been doing this for 50 years. We have very little track record, very little history to call upon. We’re exploring.” 

The only operating refinery in East Africa is in Kenya. The country also holds the region’s largest port, which can be found in Mombasa. 

While some have deemed Kenya as the go-to-destination for oil and gas discoveries in East Africa, Page maintained that the country still has a long way to go. 

“If you look at the East African countries, people would usually pick out Kenya as being the economic powerhouse and it does seem to be moving quite quickly towards development on the discoveries that were made last year by Tullow [Oil]. Still, there could be a lot of bumps in the road on the way to that,” he said. 

“There’s a lot of activity going on in Tanzania although we’re still, at least, two years away from a final investment decision on the offshore gas projects. Uganda is moving very slowly towards oil field development – that’s the approval of some development plans recently, some more in the pipeline. With all the delays in Uganda over the export route and domestic refinery, we still expect things to move more slowly there.” 

Page also indicated that all of the investment in the industry at the moment is from the private sector but that government would continue to be a major player in the future of oil and gas in East Africa. 

“The big transformation that we’ve seen over the past four years is the advent of the international oil and gas majors, so BG Group from the UK, Stat Oil, Shell, Anadarko and Total, many of the Chinese and Indian companies are starting to participate now. The international majors are represented to a much greater extent here in East Africa than they were – these are the guys that are going to spend the big money,” he said. 

“The government will have money to invest because they are the major participants in all of these projects. A very large proportion of the profits generated from the projects go into the pockets of the government – somewhere in the order of 70 to 80 per cent of the profit. In 10 to 15 years-time, all of these governments in these countries with major discoveries are going to have a great deal of money to spend but the investment today is coming from the private sector.”  

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