Low-cost oil -The Hard-Talk of #EAoil

"Don't ever make decisions based on fear. Make decisions based on hope and possibility, make decisions based on what should happen, not what shouldn't" Michele Obama once said. "Wild frustrated expectations and perceptions of inequity and exploitation... amid absolute poverty and the risk of intolerably high cyclical price oscillations" is how the book The Global Curse of Black Gold describes oil. It seems development of East Africa’s 3.5 Billion barrels faces similarities, unless decisions and investment choices are based on hope and possibility.

Uganda made the $3.3 Billion Tanga crude 1,400KM pipeline decision to offtake its 1.7B barrels recoverable at an average price of $50 a barrel. Mid August 2017, the project was launched after rigorous geopolitical discussions. Total-operated consortium was 'given instructions to work day and night' to birth the crude to the market by 2020 at tariff rate of $12.25/barrel. Kenya has the choice to spend another $2 billion for an 891KM Lokichar Lamu off-take Pipeline or join the East African Crude Oil Pipeline (EACOP) and possibly spend less. A back loop Lokichar-Hoima is 500 KM makes business sense for a poor country revenue needs. Uganda President extended the invitation.

So East Africa is exporting $5.5B as pipeline costs deductible from $50 oil? Why should neighbour’s are rushing to beat each other at being poor? Tanzania gave Uganda a better deal compared to what Kenya offered. Uganda made the business choice of taking a cheaper route for off-taking its oil. Kenya should also take the cheaper deal. Is joining the EACOP a cheaper deal? Some observers say so. This can be done without loosing the value of the LAPPSET. Kenya should not “catch feelings” as Dela sings.

The $7.45B Maersk acquisition "does not impact the development plan that we have on the Uganda resources for the Tanzania pipeline. It's a priority for us. We want to sanction that project first half 2018, and so we'll not change our plans on Uganda, but maybe we'll see if we can be efficient and participate in the development of Kenya," Total Uganda's CEO Patrick Pouyanne is quoted in Uganda Radio Network.

Kenya hosts some of the assets owned by Denmark's Maersk Oil and Gas in the South Lokichar area. Tullow oil recently predicts the upward of 750 Million barrels if the northern Lokichar play predictions are proven. Total acquired Tullow's Uganda interests. Given Tullow's financial position, there have been discussions that Total moves may influence Kenya's crude pipeline petroleum development. 

Low international oil prices are predicted to stay for a while. American Shale is the new price setter and supply glut will overwhelm even a major shock like war. Long term demand for oil is also on the slide. We may have less than 30 years before we may have to look really hard to find market for all the oil in the world. East Africa has all the sun for now. Battery storage technology is getting cheaper by the day. Solar-plus-storage will be what utilities will make abundant renewable renewables like solar and wind attractive in East Africa. More European Countries are capping diesel car's already. 2 Million electric cars were sold in 2016. More people prefer to share than to own cars. Cars are a major source of petroleum demand.

You would understand President Museveni’s rush to first oil, let alone sensitivities to Kenya route. East Africa still produces oil for export revenue. Even with the refineries proposals (Uganda has a 60,000 barrels/day refinery and Kenya is flirting with a proposal too) Local demand will not rise to any major level. How long does East Africa have for sustainability discussions to weigh in.

For now the decisions to choose a single pipeline are slime. It would be cheaper for East Africa to spend less and build one least cost crude pipeline. This will save on cost oil deductions. Crude pipeline take almost 30% of cost oil. Faced with low international prices on average $50, even though Kenya can make the choice to go it alone, prudence would save East Africa 4 much needed development revenue. Climate change costs related to health, food security and integrity of infrastructure would also have more adoption funds. Kenya would also have more money to invest in Lamu Ports South Sudan Ethiopia Transport Corridor (LAPSSET).

So, we close by adding energy to a quote of Nelson Mandela: "May our 'Energy' choices reflect your hopes, Not your fears".

These are personal opinion. due diligence is advised.