East Africa’s Energy Boom

East Africa’s Energy Boom

From Kenya in the north to Mozambique in the south, East Africa is undergoing an oil boom that could potentially bring untold riches to investors in the energy industry and the countries along Africa’s Eastern Seaboard.

Will Africa’s newest oil patch, however, be able to avoid the problems that have come with energy wealth on the west side of the continent?

The boom in offshore oil and gas development has brought dozens of companies to one of Africa’s great underexplored hydrocarbon regions, ranging from Norway’s Statoil to America’s Andarko Petroleum and the China National Petroleum Company.

Already, multinationals drilling off of Mozambique have discovered massive natural gas fields rivaling in size and economic potential the reserves of Middle Eastern countries such as Qatar and Iran. Oil, too, though in smaller amounts, has been discovered in Mozambique’s new offshore gas field.

Altogether, industry analysts report that since the discovery of oil in Uganda in 2006, East Africa has become a major focus of exploratory activity by multinational oil firms. Indeed, in the past two years more oil has been discovered in East Africa than in any other place on Earth.  Altogether, billions of barrels of oil and trillions of cubic feet of natural gas await discovery and production.

Such a boon could bring an economic windfall to the energy-starved people of East Africa. The potential for infrastructure development, industry-related jobs, and new sources of government revenue could help transform the region.

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The strategic location close to thirsty markets in India, China, and Southeast Asia could make East Africa not only a competitor to suppliers in the Middle East, but a region of importance to Washington, Brussels, and Beijing, too.

A lot has to be done though before these newly discovered resources can be made available to the world’s consumers. Infrastructure is severely lacking and in many places will have to be built from scratch. It will also in many cases require countries – some with histories of troubled relations with one another – to work more closely together than they ever have before. This is especially the case for Uganda, whose landlocked oil will require a pipeline connection to a port in order for it to be brought to market.

Also of concern are the regulatory and political environments multinational oil firms will encounter as prospecting and discovery give way to production and sales. Kenya’s election turmoil in 2007, for instance, served as a reminder that political conditions on the ground are not as stable as some investors might like.

Finally, another potential problem is corruption. Allegations have already emerged in Uganda, the birthplace of East Africa’s oil boom, that government ministers have taken bribes from firms looking to cash in on the country’s new-found oil wealth.

These are reminders that bringing East Africa’s oil wealth into production will be a difficult task. Indeed, Nigeria’s troubled history with oil is a case in point.

Nigeria, Africa’s largest oil producer, has seen immense political strife and multiple coups against elected governments over distribution of the country’s oil wealth. This conflict resulted in a civil war in the Biafra region in the 1960s, sporadic military takeover of governments, and political stability ever since. Today, conflict over oil revenue distribution and environmental damage inflicted by the industry have created near anarchy in the country’s Niger Delta region.

Longer term, oil has also proven something of a curse for many developing nations. The oil industry, for instance, tends to suck the life out of other sectors of the economy as the vast amount of money that comes with it entices everyone from fishermen to scientists to grab a piece of the pie. Oil wealth is also widely associated with corruption and tendencies towards authoritarian government. More worrisome, the industry does not produce much in the way of jobs after the initial construction of needed infrastructure takes place – most work tends to go to highly-educated expatriates.

Still, none of these potential obstacles are deterring the governments of East Africa or the myriad companies seeking prospecting rights or production concessions from them. Indeed, industry bigwigs and the government officials they seek to woo will be meeting for a confab this October in Nairobi.

Clearly the hunt for East African oil riches, no matter the problems that may come with it, will continue.