East Africa’s oil dreams tested by pipelines

johannesburg — A decade after its first big oil find, East Africa’s emergence as a crude exporter has been hindered by security and cost concerns that left the region building two pipelines instead of one.

Uganda and Kenya are developing two new basins and originally agreed to build one line to connect the landlocked discoveries to the coast. That changed last year, when Uganda chose a

The Kenyan pipeline seemed economically viable when Ugandan oil was going to flow through it Jacques Nel, economist at NKC African Economics

more southerly 1,400km route through Tanzania, citing lower transit prices. Kenya will go it alone with an 865km line to a port on the Indian Ocean.

Two pipelines will test the economics of the developments. Both projects probably need an oil price of $50 to $55 a barrel to break even, while lower costs or taxes may be required to justify a final investment decision in Uganda, according to BMO Capital Markets. The Tanzanian route will get some funding help from France’s Total, which owns a stake in the Uganda reserves, but it still hasn’t secured the financing it needs. Further north, Kenya’s explorers are under pressure to improve the project’s viability by finding more resources.

“The Kenyan pipeline seemed economically viable when Ugandan oil was going to flow through it,” said Jacques Nel, an economist at NKC African Economics. With separate lines each carrying less oil than planned and global prices remaining weak, the economics “will continue to cast a shadow over the development of the sector,” he said.

In 2006, when Tullow Oil found what may be 1.7 billion barrels of recoverable reserves in landlocked Uganda’s Lake Albert region. — Bloomberg