How much oil? Why East Africa’s bounty is nei­ther sig­nif­i­cant, nor ex­cep­tional

The re­cent com­mence­ment of Kenya’s Early Oil Pi­lot Scheme con­firms the coun­try’s quest to join petroleum pro­duc­ing and ex­port­ing na­tions. Com­pris­ing the lat­est en­trants into the ranks of petroleum oil and nat­u­ral gas en­dowed na­tions, Kenya, Tan­za­nia and U

The East African - - NEWS -

Bri­tish petroleum econ­o­mists make tech­ni­cal dis­tinc­tions be­tween dif­fer­ent mea­sures of re­serves. ‘’Proved re­serves’’ is the term used to re­fer to re­serves that are ge­o­log­i­cally re­cov­er­able un­der cur­rent eco­nomic and op­er­at­ing con­di­tions.

In other words, re­serves that do not de­mand highly spe­cialised tech­niques and tech­nolo­gies to ex­tract and whose ex­trac­tion leaves a rea­son­able mar­gin of profit un­der “cur­rent’’ oil.

The ab­sence of ac­cu­rate statistics on Kenyan and Ugan­dan oil boun­ties on pub­lic data­bases of ma­jor oil pro­duc­ers like Bri­tish Petroleum and in­for­ma­tion col­lect­ing agen­cies, per­haps bears tes­ta­ment to the nov­elty of those dis­cov­er­ies if not their triv­i­al­ity to to­tal global re­serves. Quo­ta­tions of Kenya’s and Uganda’s re­serves are based on re­cent press re­leases and best es­ti­mates by ex­plo­ration firms and scant gov­ern­ment sources.

Proved Re­serves at Global, Con­ti­nen­tal and Re­gional Lev­els

The quan­tity of proved oil re­serves, rate of pro­duc­tion and re­serves to pro­duc­tion ra­tio are the ma­jor vari­ables that al­low for the oil boun­ties of dif­fer­ent re­gions and na­tions to be com­pared in a sen­si­ble man­ner. Eco­nomic fac­tors driven by mar­ket con­di­tions, tech­nol­ogy and ge­ol­ogy of an area de­ter­mine the quan­tum of a “proved re­serve.”

On a global scale, ev­ery con­ti­nent is en­dowed with a con­sid­er­able bounty of oil. Of the world’s 1.706 tril­lion bar­rels of proved oil re­serves, the Mid­dle East’s 813.5 bil­lion bar­rels com­prises 47.7 per cent of all proved re­serves mak­ing this re­gion the wealth­i­est in crude oil en­dow­ment. Venezuela’s oil fields are the largest held by a sin­gle na­tion. That na­tion bears 300.9 bil­lion bar­rels, mak­ing up 91.76 per cent of South and Cen­tral Amer­ica’s to­tal proved re­serves and 17.6 per cent of the global share of proved oil re­serves on the globe. The world’s 1.706 tril­lion bar­rels of proved oil re­serves amounts to 36,461 litres of un­re­fined crude for ev­ery liv­ing hu­man based on 2017 pop­u­la­tion.

Fi­nally, it is es­ti­mated that at the cur­rent av­er­age rate of pro­duc­tion, global oil re­serves will last an­other half cen­tury be­fore they are de­pleted. Though con­cen­trated in the Mid­dle East and South & Cen­tral Amer­ica – re­gions that hold 66.9 per cent of proved oil re­serves glob­ally – oil is not a re­source unique to any par­tic­u­lar re­gion of the world.

Africa’s en­dow­ment of 128 bil­lion bar­rels is re­mark­able when it is noted that Libya’s 48.4 bil­lion bar­rels is roughly equal to the en­dow­ment of the whole Asia Pa­cific re­gion. That is to say, Libya and the Asia Pa­cific each equally hold 2.80 per cent of the world’s proved oil re­serves.

South Su­dan, Kenya and Uganda are the only East African na­tions with proved oil re­serves. For scale, this re­gion’s 10.754 bil­lion bar­rels amounts to 22.23 per cent of Libya’s en­dow­ment and a mere 0.63 per cent of all the proved re­serves in the world. By virtue of the small size of its proved re­serves – re­serves that have yet to be­gin be­ing sold in the mar­ket – oil dis­cov­er­ies in East Africa are not sig­nif­i­cant on the global map. Stated dif­fer­ently, the six eastern Africa na­tions are small play­ers in the global petroleum ex­trac­tion and mar­ket­ing league. This is es­sen­tial to note es­pe­cially af­ter es­tab­lish­ing the fact that crude petroleum re­serves are lib­er­ally dis­trib­uted glob­ally. As pos­ses­sors of crude petroleum oil fields, Kenya and Uganda will join South Su­dan as oil pro­duc­ers but they are all not en­ter­ing an elite club. (See ta­ble 1)

Pro­duc­tion

The rate of pro­duc­tion of an oil field is in­dica­tive of its po­ten­tial as de­ter­mined by the mar­ket. A large proved oil re­serve at­tracts large in­vest­ments. Con­versely, the larger proved re­serve lends it­self to higher rates of pro­duc­tion be­fore the point of de­ple­tion is reached. The rate of pro­duc­tion is thus a de­ter­mi­nant of the life­span of an oil re­serve. In 2016, the world pro­duced an av­er­age of 92.2 mil­lion bar­rels of crude oil a day. Pre­dictably, the Mid­dle East led in rate of crude pro­duc­tion, ex­tract­ing 34.5 mil­lion bar­rels of crude a day. In that same year, the United States edged out Saudi Ara­bia as the lead­ing na­tional oil pro­ducer in the world, ex­tract­ing crude at a rate of 12.35 bil­lion bar­rels a day com­pared with Saudi Ara­bia’s 12.349 bil­lion bar­rels a day. They each av­er­aged 13.41 per cent and 13.40 per cent re­spec­tively of the global petroleum pro­duc­tion for 2016.

In comparison, con­ti­nen­tal Africa pro­duced 7.892 mil­lion bar­rels a day. South Su­dan av­er­aged 118,000 bar­rels a day while Kenya and Uganda hope to be­gin their own op­er­a­tions at the mod­est rates of 80,000 and 60,000 thou­sand bar­rels a day re­spec­tively.

At present day rates of pro­duc­tion, the world’s oil boun­ties will all be de­pleted within half a cen­tury. When com­pared dis­cretely, South and Cen­tral Amer­ica’s re­serves have the longest life­span at 119.9 years based upon their present ex­trac­tion rates. On a na­tional level, it is es­ti­mated that US re­serves will be de­pleted in 10.6 years while Cana­dian re­serves ill de­plete in 105.1 years. At 80,000 bar­rels a day, Kenyan re­serves will be de­pleted in just un­der 25 years. Uganda’s and South Su­dan will see de­ple­tion in 296.80 and 27 years re­spec­tively, based on the ex­trac­tion rates that have been de­clared.

This goes to show that de­spite be­ing the lat­est en­trants into the global oil mar­ket, the eastern Africa coun­tries to­gether will not af­fect gen­eral sup­ply of oil to the world mar­ket. Rea­son­ing from the facts, the re­gion has far too lit­tle re­serves to get in­vi­ta­tion into that price-fix­ing car­tel of Or­gan­i­sa­tion of Petroleum Ex­port­ing Coun­tries, where the coun­tries with the largest re­serves co-or­di­nate mar­ket ac­tiv­ity to main­tain sup­ply and de­ter­mine prices.

The range of fu­ture rates of pro­duc­tion can be pre­dicted by the size of the proved re­serve which will it­self drive the scale of in­vest­ment in a given re­serve. As South Su­dan’s’ proved re­serves are higher than Kenya’s, it is likely and pos­si­ble for South Su­dan’s rate of pro­duc­tion to re­main higher than Kenya’s. Based on the statistics re­leased by the gov­ern­ment of Uganda, it’s 6.5 bil­lion bar­rels of proved re­serves may at­tract the high­est in­vest­ment in the re­gion, giv­ing Uganda a higher pro­duc­tion rate than its neigh­bours. Based on its cho­sen rate of ex­trac­tion, it ap­pears that a choice may have been made to stretch the life­span of these re­serves in­stead of de­plet­ing them sooner. OPEC na­tions are price set­ters and can fix their rates of oil pro­duc­tion. For East African na­tions, how­ever, the mar­kets will de­cide the rates that these re­serves should be ex­tracted. (See ta­ble 2)

Oil sup­ply and de­mand statistics vary due to in­escapable dif­fer­ences in def­i­ni­tion and mea­sure­ment of in­for­ma­tion. Stock changes or vari­a­tions be­tween na­tional strate­gic oil re­serves main­tained for strate­gic eco­nomic and po­lit­i­cal rea­sons and oil pur­chased on the mar­kets will also in­flu­ence the dif­fer­ence in oil sup­ply and de­mand statistics.

For these rea­sons, Bri­tish Petroleum states that in 2016, the world pro­duced 92.150 mil­lion bar­rels of crude oil daily while con­sum­ing 96.6 mil­lion bar­rels in the same year. En­ergy de­mand in a mod­ern econ­omy is driven by the in­ten­sity of in­dus­trial ac­tiv­ity, the num­ber of ve­hi­cles in a coun­try and the size of an econ­omy and income of its peo­ple. These four fac­tors are use­ful pre­dic­tors of the de­mand of petroleum oil. The Asia Pa­cific re­gion reg­is­tered 34.77 per cent of the world’s share of crude oil con­sump­tion. The Asia Pa­cific is there­fore the most oil-thirsty re­gion on the globe and this is no sur­prise since the in­dus­trial giants that are China, In­dia, Ja­pan and South Korea are all based here. North Amer­ica fol­lows with 24.7 per cent of to­tal world con­sump­tion.

Seen in dif­fer­ent terms, Asia Pa­cific na­tions con­sumed 33.58 mil­lion bar­rels of oil per day to North Amer­ica’s 23.843 mil­lion bar­rels. On a na­tional level, the United States was the most in­ten­sive user of oil, con­sum­ing 19.63 mil­lion bar­rels of oil, or 82 per cent of North Amer­ica’s to­tal and 20.3 per cent of the world’s to­tal oil.

As an oil pro­ducer, the US en­joys low fuel prices com­pared with other na­tions with its equiv­a­lent income lev­els so that its cit­i­zens are in­cen­tivised to use high amounts of fuel in trans­porta­tion. No­tably, the US oil in­dus­try en­joys wide rang­ing sub­si­dies. Saudi Ara­bia’s ge­o­graph­i­cal size and its po­si­tion as an oil pro­ducer also helps ex­plain its sixth place rank­ing among the largest con­sumers of crude oil.

Africa ac­counted for 4.1 per cent of global con­sump­tion or 3.937 mil­lion bar­rels of crude oil. In Africa, Egypt, Al­ge­ria and South Africa ac­count for 46 per cent of con­ti­nen­tal con­sump­tion of crude oil, be­ing also among the largest economies on the con­ti­nent. Egypt con­sumed 8.53 mil­lion bar­rels or 0.9 per cent of the world to­tal while it bears 1.3 per cent of the world’s pop­u­la­tion. Though their economies are roughly equal in size and Ethiopia’s pop­u­la­tion is larger than Kenya’s, the lat­ter boasts a larger in­dus­trial base and more mo­tor ve­hi­cles per capita. Nairobi alone has more cars than the whole of Ethiopia and this ex­plains a large part of the dis­par­ity in oil con­sump­tion in Kenya’s favour.

Gas sup­ply quan­tum

Ge­o­log­i­cally speak­ing, the pro­cesses that form oil and gas are sim­i­lar. In the cav­ernous un­der­ground spa­ces in which de­posits of oil are found, gas forms what is termed a gas cap on the oil, co­a­lesc­ing above the oil due to its lighter prop­er­ties. The ex­trac­tion pro­cesses are dis­sim­i­lar, how­ever. Nige­ria flares a large amount of its gas de­posits dur­ing oil ex­trac­tion. No­tably, oil and gas de­posits will not al­ways be found in pro­por­tions equal to each other. Tan­za­nia’s large finds in gas in Lindi for ex­am­ple, are not ac­com­pa­nied by crude oil. Gas is used to gen­er­ate electric power; for in­dus­trial pur­poses such as man­u­fac­tur­ing of plas­tics; for do­mes­tic use e.g. cook­ing, heat­ing; for fer­tiliser pro­duc­tion and as fuel for spe­cialised ve­hi­cles in the trans­port sec­tor. (See ta­ble 3)

Ev­ery world re­gion has gas in dif­fer­ent quan­ti­ties. In 2016, global gas re­serves stood at 186.6 tril­lion cu­bic me­tres. Sim­i­lar to its en­dow­ment with crude petroleum, the Mid­dle East and the Per­sian Gulf area has the largest gas de­posits, con­sti­tut­ing 42 per cent of the world’s to­tal. At 5 per cent North Amer­ica has the small­est share of global re­serves. On a na­tional level, Iran holds the world’s largest proved re­serves of gas with 33.5 tril­lion cu­bic me­tres. That amounts to 18 per cent of global proven re­serves. At the cur­rent rate of pro­duc­tion, it will take Iran 165.5 years to de­plete its en­dow­ment. Other coun­tries with sub­stan­tial re­serves are Saudi Ara­bia, the United Arab Emi­rates, the Rus­sian Fed­er­a­tion, Turk­menistan and Qatar at 65.5 per cent (122.1 tril­lion cu­bic me­ters) of the world’s cur­rent re­serve. As part of the larger en­ergy in­dus­try, the scale of in­vest­ment and the size of re­serve are pos­i­tively cor­re­lated

Com­mon drivers for the de­mand of nat­u­ral gas as an en­ergy source in­clude eco­nomic ac­tiv­ity, ex­treme win­ters, reg­u­la­tions in­cen­tiviz­ing tran­si­tion to­wards clean forms of en­ergy, the price of gas and po­lit­i­cal con­sid­er­a­tions. In the re­cent past, frosty re­la­tions be­tween Rus­sia and the United King­dom for ex­am­ple, af­fected the sup­ply, price and con­versely de­mand for gas in parts of Europe and the Mediter­ranean. Europe and Eura­sia, and North Amer­ica have con­sump­tion rates that are higher than the other con­ti­nents at 29 per cent and 27 per cent re­spec­tively.

The main pro­duc­ers of nat­u­ral gas in terms of tril­lion cu­bic me­tres are: US (0.7), Rus­sia (0.6), Iran (0.2), Qatar (0.2) and China (0.1). Those na­tions ac­count for 52 per cent of the world’s to­tal pro­duc­tion of 3.6 tril­lion cu­bic me­tres.

In na­tional terms, the largest con­sumers of gas are the US (0.7786), Rus­sia (0.3909), Iran (0.2008), China (0.2103) and Ja­pan (0.112) at 47.7 per cent (0.16926 tril­lion cu­bic feet) of the world’s to­tal con­sump­tion of 3.5 tril­lion cu­bic me­tres of gas. Global de­mand is see­ing a growth rate of 1.5 per cent an­nu­ally, prov­ing that petroleum fu­els are still the dom­i­nant mode of non-solid fu­els in the world. At the cur­rent rate of pro­duc­tion to meet de­mand, the world will de­plete its nat­u­ral gas re­sources in 52.5 years.

Africa has proved re­serves that stand at 14.3 tril­lion cu­bic feet with a life span of 68.4 years. This gives Africa a share of 7.6 per cent of the to­tal world re­serves for gas. Within Africa, Nige­ria holds the largest gas re­serves at 186.6 tril­lion cu­bic feet (2.8 per cent of the world’s share) that will be de­pleted in ap­prox­i­mately 117 years at their cur­rent rate of pro­duc­tion of 44.9 bil­lion cu­bic feet per year. Al­ge­ria on the other hand takes on the sec­ond largest at 159.1 tril­lion cu­bic feet (2.4 per cent of the world’s share) that will be de­pleted in a lit­tle less than half a cen­tury.

The ma­jor pro­duc­ers in Africa are Nige­ria (0.0449), Libya (0.0101), Egypt (0.0418) and Al­ge­ria (0.0913), pro­duc­ing a to­tal of 0.1881 tril­lion cu­bic feet of gas cu­mu­la­tively which is 5.4 per cent of the world’s to­tal pro­duc­tion. Africa’s pro­duc­tion rate is how­ever de­creas­ing at a rate of 1.1 per cent per annum. Africa’s con­sump­tion rate is at 138.2 bil­lion cu­bic me­tres at a growth rate of 1.4 per cent. It would take Africa 68 years to com­pletely de­plete its re­serves. Africa has been lag­ging be­hind in the ex­trac­tion of nat­u­ral gas de­spite dis­cov­er­ies of vast amounts of it that can be found in dif­fer­ent parts of the con­ti­nent, with the most re­cent dis­cov­er­ies be­ing made in Mozam­bique and Tan­za­nia. In East Africa, Kenya, Uganda, South Su­dan and Rwanda also have some in­signif­i­cant quan­ti­ties of nat­u­ral gas. (See ta­ble 4)

Con­clu­sion

East Africa’s dis­cov­ery of oil does not rank it amongst uniquely en­dowed na­tions, nor does the quan­tity of oil sug­gest that those dis­cov­er­ies will make a sig­nif­i­cant im­pact on the world mar­ket. The sec­ond part of this three-part se­ries will be on the ex­trac­tion eco­nom­ics for East Africa and the third will ex­am­ine the po­ten­tial for re­gional de­vel­op­ment.

Pic­ture: File

Pres­i­dent Uhuru Keny­atta of Kenya flags off the first tankers fer­ry­ing crude from Turkana to Mom­basa in the Early Oil Pi­lot Scheme on June 3.

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