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Fifth Session: Resource Competition, Business Opportunity and Regional Security in Eastern Africa
Fareed Mohamedi, Vice-President, Industry Analysis, Statoil
Geo-economics and Strategy Conference - The Geo-economics of Resources and Conflict in Africa

Introduction

Eastern Africa has seen the development of oil and gas resources over the last 30 years. However, the scale of the development has been relatively minor, compared to developments on the northern and western reaches of the continent. What was developed in Eastern Africa, namely in Sudan, was part and parcel of civil war and partition and due to political blockages threatens to slump back into neglect and decay.

In the next several decades, however, a number of new oil and gas provinces, potentially integrated, will likely be developed. Starting from Lake Albert in Uganda significant quantities of oil have been found by small private international oil companies. In neighbouring Kenya, both offshore and onshore, further discoveries of crude oil could see even more crude oil exports from Eastern Africa. Add to this potential finds in Ethiopia and the rerouting of crude from South Sudan, an integrated pipeline system of regional crudes could create a fairly abundant supply of oil from this region. Other discoveries down the road in DR Congo and in Somalia could add to the resources.

Further south in Tanzania and in Mozambique, in difficult to access deep water zones, international oil companies are finding substantial quantities of natural gas. Unlike oil development, which does not require substantial infrastructure, even though in the case of some land-locked countries there will be the need for pipeline and processing investments, the development of gas in Tanzania and Mozambique will necessitate substantial capital to monetise these resources. Furthermore, gas being a relatively efficient burning and clean fuel, and as a result useful for industrial processes and power generation, there are significant opportunities for this gas to contribute to the economic and income development of the region.

The potential benefits of oil and gas developments will be enumerated below. If the revenue thrown off from the exploitation of both oil and gas is used correctly and the development of infrastructure and regulatory/pricing environment is appropriate the benefits for the government and the peoples of the regional are substantial. But a lot could go wrong. Despite the fact that the leaderships of the region know only too well how oil and gas developments have ‘cursed’ economic and political development in West Africa and even the initial developments in East Africa itself, political pressures, expediency an d greed stack the chances against the region to create a transformative change to the economics and politics of the region.

The prospects of developing the region’s resources also have attracted the attention of the global oil and gas companies. In fact, smaller players from the West with access problems in the bigger major resource holding countries or in their own maturing oil/gas provinces prompted them to take the geological risk to find oil and gas in East Africa. They are cognizant of the growing ‘above ground’ risk to their investments, even in the most optimistic of circumstances, and are preparing either to reduce the risk by selling down their assets to larger companies, more accustomed to dealing with ‘above ground ‘risks or increasingly to national oil companies, especially from Asia.

Oil and gas developments are also drawing East Africa into the geopolitical calculations of the major global powers. Oil was central to sustaining and shaping the civil war in Sudan, which the US and West took a keen ‘interest’ in. Finding transport and revenue solutions to South Sudan’s stranded oil and creating greater more sustainable economies in East Africa through oil and gas exploitation will be a major objective for Western countries eager to prevent the spread of terrorism, piracy and civil conflict in the region. But hydrocarbon developments have also raised interest among the rising Asian powers both in terms of new sources of energy, new markets, trading routes and destinations for their investments. Overall, and in a more complete way the region, because of oil and gas, is being integrated into the world economy and the powers that rule it.

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Fareed Mohamedi is Vice President, Industry Analysis at Statoil in London. The views expressed at this conference and in the article are his own and do not reflect the views of Statoil.

Fareed has specialized in the economics and politics of oil and gas producing countries. He has also developed a unique methodology for understanding the strategies of national oil and gas companies. Previously, Fareed headed the country risk and oil market analysis department at PFC Energy in Washington DC. In this capacity he was an advisor to over 200 oil and gas companies. He has also held positions at Moody’s Investors Service, Institute of International Finance, Wharton Econometrics and the Ministry of Finance and National Economy of Bahrain.

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Geo-economics and Strategy

The Geo-economics of Resources and Conflict in Africa

The conference brought together select experts, policymakers and business leaders to explore, and offer perspectives on, how some of the new African Geo-economic relationships will develop and how they will shape global balances of power.