East Africa To Wait Longer For Oil-Boom Benefits As Low Prices Persist Into 2016

East Africa To Wait Longer For Oil-Boom Benefits As Low Prices Persist Into 2016

From New Vision via AllAfrica

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.

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.

Read more at AllAfrica