By Thangapandian Srinivasalu
Africa produced 8.2m b/d of crude last year – 76% came from Nigeria, Algeria, Egypt and Angola, according to PricewaterhouseCoopers’ (PWC) 2015 Africa Oil & Gas Review. But East Africa is elbowing its way under the spotlight and changing Africa’s energy map – a move easily justified by its wealth of oil and gas assets.
For example, Tanzania hopes to use its 55tcf of natural gas reserves to become a liquefied natural gas (LNG) exporter by 2025, while Tullow and Canada’s Africa Oil have identified 600m bls of oil reserves in Kenya’s South Lokichar basin. Many projects are still in the exploratory stage, but investors’ appetite has strengthened East Africa’s position in the global energy arena.
Tanzania, Kenya and Uganda are amongst several East African countries addressing wobbly regulatory frameworks by establishing bidding rounds – a more transparent way to allocate resources. Plus, the East African Community (EAC) hopes to invest around $1.5b to build 1,454 kilometers of intraregional and domestic pipelines over the next few years. The longest pipeline will be the 784 kilometer route through Kenya – Uganda – Rwanda, which should significantly bolster fuel trade between the three countries.
East Africa must react quickly to satisfy the demand of its thriving middle-class. Such households in eleven sub-Saharan African countries – including Tanzania, Kenya and Uganda – are expected to more than double from 15m people to over 40m by 2030, according to Standard Bank’s 2014 research. The subsequent appetite for oil products is vast, with a large portion earmarked to powering personal cars on newly paved roads. Most of the liquefied petroleum gas (LPG) demand will be soaked up for cooking to support the rapidly growing populations in Africa’s cities, which will also help boost the region’s green credentials.
Robust growth wherever it is always attracts global investors’ attention.
The time is right to explore African assets, but only the strongest players will survive in what is an increasingly competitive space. Tanzania, Kenya and Uganda are spearheading East Africa’s economic prowess, with the eastern region as a whole growing by 7.1% in 2014, with 5.6% and 6.7% growth forecast for 2015 and 2016, respectively.
With many energy hubs in the Middle East and North Africa (MENA) beset by political strife, the largely stable democracies in the EAC offers investors respite; the EAC demands strong governance and human rights.
Plus, lower crude prices since June 2014 have triggered a rising oversupply and pushed the market into contango – where spot prices are lower than future prices. This has boosted investments in oil storage and traders that have access to physical oil and storage can significantly bolster their profit margins.
The outlook for higher future prices has become particularly striking in the last three months as the surplus of crude oil production has increased stockpiles worldwide, exceeding capacity in many trading ports and forcing traders to seek alternatives. The high rates for very large crude containers (VLCC) means floating storage is still an unpopular second choice.
The changing market structure has presented a gateway for global trading and storage firms to enter and widen their footprint in new markets in Africa, building on already strong platforms in
The Gulf, Asia and Europe. If the oversupply of oil persists, traders may become bolder and secure their own storage facilities. They may also need to incorporate more blending capabilities and roll out additional jetties to widen their mandates to help cater for future growth.
Governments and national oil companies are also joining the rush to Africa’s east coast. Oman is looking to build a foothold to promote trade of fuel and crude into the vast landlocked interior of Africa via Oman Trading International (OTI) with a $50m investment in facilities to store fuel in Mozambique or Tanzania.
We (Gulf Petrochem) do not see any new refineries coming in near future in Africa, but Africa’s economy is in a growth phase and we expect good demand; it presents a good opportunity for storage terminals to cater to that demand.
Mr. Thangapandian Srinivasalu, is Gulf Petrochem Group’s Executive Director with a three decade experience in sales, marketing and trading of petroleum products in India & Nigeria
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