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East Africa Oil Pipelines Boon to Private Funders, AfDB Says

Oil pipelines planned in Kenya and Uganda to ferry crude from fields to port present opportunities for private financiers keen to gain a foothold in East Africa’s energy industry, the African Development Bank says.

“Nobody has ever, ever lost money financing pipelines,” Gabriel Negatu, the Abidjan-based lender’s regional director for East Africa, said in an interview in Kenya’s capital, Nairobi, on Sept. 23. If there is oil flowing, “it’s generally viable,” he said.

East African countries are in a race to start exploiting crude oil reserves estimated at 1.7 billion recoverable barrels in Uganda and 750 million barrels in neighboring Kenya. Both nations are planning to start construction on pipelines by 2018, even as oil prices are stuck at less than half the level of three years ago, straining finances of producers across the continent.

While global oil prices are “depressed a little bit,” that shouldn’t hold sway over potential investors seeking to finance pipelines in the two countries, Negatu said. Current global price levels are “not a permanent situation,” he said.

“Prices should stabilize around at $60 per barrel next year, barring the unforeseen,” Negatu said. “At that point I think the industry will adjust to that reality and figure out how to become viable and profitable.”

Kenya expects production by Tullow Oil Plc to start in mid-2017, with the government initially hauling crude by road and rail to a refinery at the port city of Mombasa. East Africa’s largest economy plans to start building an 865-kilometer (538-mile) pipeline linking fields in its northern region to a port at Lamu on the Indian Ocean coast by 2018, the government has said.
Ongoing Exploration

The AfDB is confident that results from exploration in northern Kenya and the possibility of South Sudan routing crude exports via Kenyan ports “will support the pipeline and even other downstream facilities,” Negatu said.

Work on Uganda’s pipeline, which will run from the western region of Hoima to the Tanzanian port of Tanga, is expected to begin in 2018. France’s Total SA, China National Offshore Oil Corp. and London-based Tullow are developing oil fields in Uganda’s Lake Albert basin. The three companies have been awarded production licenses by the Ugandan government that will run for 25 years.

Total SA’s backing of the Ugandan pipeline makes raising financing “a bit easier,” Jacques Nel, a senior economist at NKC African Economics in Paarl, South Africa, said in an e-mailed response to questions. The Kenyan pipeline’s financial viability may depend on further oil discoveries “as current levels do not necessarily warrant construction of a pipeline,” Nel said.

The AfDB will support the pipelines “with whatever means available,” Negatu said. “If there are two different pipelines, we will talk to both sides and find ways to make resources available.”

Source: Bloomberg