East Africa’s crude oil and natural gas exploration and production activities are forecast to be constrained this year, due to capital expenditure (capex) cuts by foreign companies.
London-based analytics arm of Fitch Group, Business Monitor International (BMI) Research, in its latest report shows that foreign firms have cut capex due to a drop in oil prices on the global market and the effects of the civil war in South Sudan.
“Civil conflict poses a risk to oil production for South Sudan. We expect the political and security environment to remain highly fractured over the coming years, weighing on any recovery in output,” said BMI.
Foreign exploration firms operating in East Africa have cut capex from 2015 when the price of crude fell below $50 a barrel. Brent crude oil, which serves as benchmark price-setter, has risen by 27.97 per cent in the past year to $65.32 in February 2018.
South Sudan plunged to civil war in 2013 because of differences between President Salva Kiir and then Vice President Riek Machar, leading to a reduction in oil production.
Exploration in Sudan and South Sudan remains constrained. BMI forecasts further decline in Khartoum’s and Juba’s crude output as reserves in the producing fields are depleted amid limited exploration.
“A range of factors are at play, including the lack of major discoveries to be brought online, rapid depletion at producing fields, damage to infrastructure, faltering investment and the lack of wider foreign participation,” it notes.
According to the report, South Sudan in 2015 produced 150,600 barrels per day (BPD) of crude and 129,500 BPD in 2016.
Output in 2018 is forecast to be 121,100 barrels per day, 2019 (145,300 BPD), 2020 (159,800 BPD) and 2021 (161,400 BPD) to be followed by a gradual decline in output by 2025.
Sudan’s crude output is estimated to have been 115,500 BPD in 2015 and 114,900 barrels per day in 2016. The forecast of 2018 is 109,200 BPD, 2019 (107,100 barrels), 2020 (104,900 BPD) and 2021(101,800 barrels).
BMI said export revenues in the Sudans are at a sustained decline.
Khartoum plans a licensing round that will include 15 blocks holding up to 70 billion barrels of crude. It hopes to increase output by about 400,000 BPD of crude from between 90,000 barrels per day to 130,000 BPD currently.
“Refined fuels production will fail to keep pace with the strong rise in consumption, triggering a mounting dependency on imports in South Sudan and falling exports from Sudan,” BMI added.
The downstream sector covering refined petroleum products distribution, storage with retailing, among other things, will see little activity in the two countries due to domestic fiscal pressures and a lack of foreign participation.
BMI does not expect Tanzania to start liquefied natural gas exports before 2027 due to a delay in building an onshore natural gas processing plant and liquefied natural gas export terminal near the coastal town of Lindi in the southeast.
According to Statoil of Norway which is one of the companies that have discovered gas, the final investment decision for the planned onshore LNG export facility will be delayed for a minimum of five years.
The country has discovered 57.25 trillion cubic feet of natural gas onshore and offshore in Mtwara and Lindi regions.
But BMI said that fiscal and regulatory uncertainties continue to plague investment interests in the gas sector. Tanzania’s parliament passed two laws in July 2017 allowing the government to renegotiate contracts with mining and energy firms.
“Based on the new model production sharing agreement, companies may expect higher taxation, an expanded role for the state and more stringent local content mandates,” said BMI.
Although domestic oil and gas consumption is relatively limited in Tanzania, it is set for strong growth supported by an expanding population and economic development.
“Oil consumption continues to outstrip gas, although development of the country’s substantial gas resources could tip the balance, as we see continued efforts to invest in new gas-fired power generation,” said BMI.
The company said Tanzania lacks the domestic infrastructure, notably a refining plant to process crude shipments that transit in its territory from western Uganda, but the country will benefit by charging transit fees.
Kampala and Dar es Salaam agreed in 2016 to build a 1,450km crude oil export pipeline from Hoima in Uganda’s Albertine basin to Tanzania’s Tanga port, which is expected to be launched in mid-2021.
Uganda in April 2016 decided to proceed with Tanzania oil pipeline project instead of originally planned Hoima to Lamu port route on Kenya’s coast. Uganda and Tanzania in May last year signed pipeline framework agreement.
The first crude oil production in Uganda is now expected in 2022 because of the large infrastructure requirements and government bureaucracy, from the initially projected 2020.
At 2.5 billion barrels of recoverable crude, Uganda has sub-Saharan Africa’s fourth largest reserves behind Nigeria, Angola and South Sudan.
Uganda’s current exploration and appraisal campaigns have reached an end.
New exploration will be delayed until progress is made towards developing existing discoveries. Tullow Oil Plc is working with joint venture partners to make FID of production facilities for crude discoveries in the Albertine basin.
Uganda has awarded three blocks under first competitive licensing round launched in 2015 promising some level of exploration activity in medium term. Oranto Petroleum of Nigeria has been awarded two production sharing agreements for exploration of Ngassa block.
“The block was previously licensed to Total, China National Offshore Oil Corporation (CNOOC) and Tullow who abandoned field in 2012 after explorations failed to discover substantial oil reserves,” said BMI.
Uganda has also signed with Armour Energy Ltd of Australia PSA for Kanywataba block in the crude oil rich Albertine basin.
Tullow, Total S. of France and CNOOC are working to conclude sales agreements of the Lake Albert Development Project. The deal requires government approval to be completed.
Tullow in January 2017 agreed to transfer 21.57 per cent of its 33.33 per cent interest in Uganda’s exploration areas 1, 1A, 2 and 3A to Total for consideration of $900 million. CNOOC has exercised its pre-emption rights.