Commentary

Collaboration key in the petroleum industry

In Summary

•Regional cooperation in the oil and gas sector is expected to be hot on the agenda in EAPCE 2019.

• A potential area for EAC collaboration in the petroleum industry is the construction of critical infrastructure

Petroleum trucks at Likoni crossing channel.
Petroleum trucks at Likoni crossing channel.
Image: FILE

The East Africa Petroleum Conference and Exhibition (EAPCE) 2019 kicked off in Mombasa, Kenya on 8th May 2019. The ninth edition of the biennial regional event, set to run up to 10th May 2019 and organized by the East African Community Secretariat in conjunction with the EAC partner states, is targeted at facilitating constructive dialogue and collaboration between private sector players, national oil companies (NOCs) and regulatory bodies involved in the oil and gas industry, with a view to expanding investment opportunities in the industry. To this effect, EAPCE 2019 is aptly themed, “The Destination of Choice for Oil and Gas Investment Opportunities to Enhance Socioeconomic Transformation”.

Regional cooperation in the oil and gas sector is expected to be hot on the agenda in EAPCE 2019. While a number of EAC partner states have made oil and gas discoveries over the past decade, cooperation with respect to the development and production of these resources has been minimal. This is largely evidenced by the public disagreements that have occurred in relation to potential areas of collaboration, such as the construction of critical oil and gas infrastructure. Infighting within the EAC has consequently led to partner states taking a ‘go-it-alone’ approach with respect to the development and production of petroleum resources. It is expected therefore that concrete solutions that enable efficient and sustainable collaboration in the management and development of natural resources will stem from EAPCE 2019.

A potential area for EAC collaboration in the petroleum industry is the construction of critical infrastructure, such as petroleum export pipelines, that enable the evacuation of crude oil for onward transportation to global markets. Initially, Kenya and Uganda planned to jointly develop a petroleum export pipeline, routing the same through Kenya’s Lokichar basin, with estimates approximating the financial burden on Kenya and Uganda being USD 7.70/bbl and USD 8.30/bbl. However, following a number of concerns raised by the Ugandan government with respect to the northern route, such as security, land acquisition, inflation of costs and ability to deliver the project on time, Uganda opted to evacuate its crude through the Tanga port in Tanzania, while Kenya opted to develop its own pipeline. This significantly raised the funding requirements for Kenya and Uganda to an estimated USD 12.94/bbl and USD 11.30/bbl respectively.

Aside from the increase in cost in relation to the proposed petroleum export pipeline, the lack of collaboration between EAC partner states effectively locks the EAC from potential benefits that arise from creating a shared pipeline network that provides for cost sharing with respect to the transportation of the natural resource. These benefits include increased control of pipeline assets and catalytic effects on the economic growth of the partner states.

In the interest of collaborative efforts, it is imperative that EAC partner states dedicated to collaboration stay the course and enable dispute resolution mechanisms that ensure areas of concern are swiftly resolved.

Karen Kandie – MD IDB Capital