New export pipeline critical to boost East African oil production: analyst

Recoverable oil reserve estimates in Uganda sit at approximately 750 MMbbl of oil, while Kenya’s oil reserves are approximately 600 MMbbl.

With the government share of these reserves expected to be between 30-50 per cent, GlobalData says “the potential impact on economic development in these countries could be great”. But to reach this potential, GlobalData stipulates that new infrastructure, including an export pipeline, is required for commercialisation of the oil discoveries.

Provided an export pipeline is developed, GlobalData says that overall oil production in Uganda could peak at about 200,000 bbl/d by 2023, while Kenya’s production could reach approximately 85,000 bbl/d by 2027.

GlobalData Upstream Oil and Gas Analyst Jonathan Markham says that, while a range of possible pipeline routes to ports in Lamu, Mombasa or Tanga have been proposed, upstream development in the region has stalled due to a lack of progress in developing an export route for these inland discoveries.

“Operators have been lobbying for an export pipeline since the discoveries were made to enable development of the area. Tullow Oil and Africa Oil have cautiously welcomed progress made in agreeing a pipeline route from Uganda through northern Kenya to Lamu, but Total prefers routes further south, citing security concerns in northern Kenya,” says Mr Markham.

Mr Markham adds that the development of an export pipeline would also be a driver for upstream exploration in the region. Some blocks have already been licensed by governments in central and eastern Africa, but the remote locations have dampened interest from major oil companies.

“Current license holders view new basin exploration as an area with high growth potential, with South Sudan, Ethiopia, Tanzania, Rwanda and the Democratic Republic of the Congo all possible beneficiaries of new pipeline routes.

“Discoveries in Kenya and Uganda have favourable subsurface characteristics and relatively low exploration and appraisal costs compared with the deep water dominated exploration in West Africa. Estimated full-cycle capital expenditure per barrel for these upstream developments is about US$8-12, which is increasingly enticing, as the oil and gas industry cuts back on costs. However, without an economical export route, the inland discoveries will remain commercially unviable at current oil prices.”

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