East Africa's oil-boom to delay as low prices rage into 2016

The prospect of an East African oil boom is in pause mode as global price of crude oil continues to fall, leaving regional infrastructure projects such as the pipeline on hold and hundreds of jobs lost as oil firms cut costs to stay afloat. Some 200 kilometres from Kampala is Hoima Municipality, located in Uganda’s mid-western region; home to the Albertine grabben that is rich in several billion barrels of oil. There’s also an ongoing election campaign in Uganda ahead of the presidential polls in February 2016 and the locals are pregnant with expectation. Tailor-cut campaign messages have been prepared by the contenders for each respective district; for Bunyoro, such messages are incomplete without mentioning oil. It’s November 17, and one of the three leading contenders for the presidency, independent candidate Amama Mbabazi was in Hoima the previous day, as expected, his message to the locals was one woven around oil. “Oil is for Bunyoro and Uganda at large; but you in this region which has oil should get more share than others,” he said. Most locals cheered. Some just listened while others just looked on incredulously. Mbabazi’s message was in a way, also a response to the incumbent, Yoweri Kaguta Museveni, who started the oil rhetoric several months before campaigns kicked off, in July, when he told a Muslim congregation that opposition politicians were ‘after his oil.’ At the vanguard of Ugandan opposition against Museveni are two of his former allies, Dr. Kiiza Besigye, a retired colonel who served as the president’s personal doctor during their bush war, and Amama Mbabazi, an immediate ex-Premier and secretary general of the ruling party. Initially, Ugandan oil was expected to start flowing by 2017 and its proceedings were tipped to transform the lives of locals in and beyond Hoima. The prospect, naturally left locals excited. Regional excitement Beyond Uganda, the oil prospects also excited the region. In July 2013, Uganda’s Yoweri Museveni invited his Kenyan and Rwandan counterparts to Kampala where they formed the now eminent Northern Corridor Integration Projects Initiative (NCIPI). The three countries agreed to jointly invest in several heavy capital infrastructural projects on the Northern trade corridor, including two oil related projects; a refinery and a petroleum products pipeline. South Sudan, DR Congo and Ethiopia have also joined the partnership. East Africa is a net importer of petroleum products and the possibility of some partner states becoming producers had elated the region; it also made the idea of jointly investing in the relevant oil infrastructure sensible to all. Oil exploration activities had been ongoing in Uganda for a long time but commercial quantities were only discovered in 2006 in exploration blocks jointly licensed to the Anglo-Canadian firm Heritage and the Anglo-Irish Tullow oil. Global oil prices at the time may not have been at their best but they were on their way up which provided an impetus for investment; soon more international oil firms were eying Uganda to acquire exploration licenses and eventual production. Heritage chose to sell its stake and cash-in early; Tullow jumped at the chance and the first oil transaction was sealed at over a billion dollars; business had started, in earnest. But Tullow needed help to raise more resources needed for long term investments and the French oil majors, Total and China National Offshore Oil Cooperation (CNOOC) entered the arena. The French and Chinese oil firms paid $1.45bn for equal stakes in the areas formerly jointly owned by Tullow and Heritage; the three firms are now the leading players in Uganda’s oil field. Tumbling oil prices Then global oil prices started to drop. Before June 2014, they had hovered between $100 and $125 but by December, prices had dropped by more than 40 percent to below $70 per barrel and it is now at $37. Increased domestic oil production in the America, said to be up by 4million barrels a day since 2009 has resulted in the reduction of American crude imports leading to a clogged world market. The American effect has been worsened by slowing growth in China, the second largest buyer, further weakening demand for the commodity and hurting its price. With the two leading importers of world oil now buying less, the leading producers under their OPEC grouping were expected to cut supply and rebalance prices. They refused. Going into 2016, the world economy is expected to remain weak, according to the International Monetary Fund; demand will struggle meaning commodity prices will remain low. Hard effects Fred Byenkya is a journalist with Spice Fm, a local radio station located in the heart of Hoima Municipality; he says the oil excitement among locals has significantly dwindled. “It is still felt but not as much as it used to be two years ago. There’s a lull in the activities of oil firms and many workers have been laid off,” said Byenkya. All three leading players in Uganda’s oil fields are not actively investing. Total and Tullow have both released hundreds of their employees while CNOOC is keeping a presence by sponsoring a regional football tournament in the name of Social Corporate Responsibility. Maurice Achaali Kyebambe (pseudo name on request) was an environmental officer with Total until April 30, 2015, when he along close to 50 other workers, had their contracts terminated. “Initially, they started with the ‘reduction in non-essential’ expatriate staff, these were sent home before they shifted focus to Ugandans, the famous nationals and bump, that is how we went,” Kyebambe reminisced. The same fate was served to Tullow workers and hundreds of service providers; those who have been lucky, like Kyebambe, have since found other jobs but many are still searching. Politics over pipeline route It’s not the first time global oil prices are facing turmoil. It’s a cycle; hence it would be prudent to invest in the relevant infrastructure such as the pipeline, ahead of the price recovery. However, inside sources say there is a fierce disagreement between Tullow and Total on the route of the oil pipeline, this has not only disrupted efforts to mobilise funding but also means the timeline to drilling will be pushed ahead. Tullow prefers the pipeline to follow the Northern route through Kenya, where the firm has a field in the Turkana area and both Uganda and Kenya had initially backed this route. However, Total is in favour of developing the Southern route through Tanzania arguing that it is cheaper and makes more business sense than the northern route. A deadlock has since ensued. Two days before Christmas, Total Chairman Patrick Pouyanne was in Kampala to meet with President Yoweri Museveni; according to a statement released by the firm. The statement says Pouyanne argued that ‘the crude export route should be primarily selected on the basis of economical criteria, in particular the lowest cost and the reliability and safety of the operations; he therefore told the president to back Total’s southern route pursuit. Insiders expect Total to prevail over Tullow a development not only likely to derail the initial timeline but also risk sidelining Kenya, as a member of the NCIPI. “Tullow is considered the ‘small boys’ by Total, the ‘bullies’ in the oil sector (No 4 in the world). Technically, the big boys want to ultimately push Tullow into selling its interests to them and denying them a pipeline through Kenya could be aimed at frustrating them,” said Kyebambe. At the end of the NCIPI 12th summit held in Kigali, heads of state directed ministers ‘to continue exploring ‘alternative financing options including Public Private Partnerships to raise funds for the development of the pipeline project.’ But during his meeting with Museveni, Pouyanne assured of ‘Total’s strong commitment to work towards producing the Ugandan oil resources as soon as possible and at whatever prevailing oil price.’ Museveni is widely expected to win the February election and delivering on his oil promises to Ugandans will be high on his agenda; but with the prevailing weak global oil prices and the politics among the oil firms, this might take a while to materialize. “Technically speaking and with all factors considered, production will not be here till 2022 at earliest,” said Kyebambe. editorial@newtimes.co.rw

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East Africa's oil-boom to delay as low prices rage into 2016