Columnists
Why East Africa’s onshore oil projects are experiencing funding difficulties
Friday July 14 2023
Tullow Oil tanks at its Turkana field. FILE PHOTO | NMG
Greenfield onshore projects for oil exploration, development, and commercialisation in the East African region are either delayed or stalled without funding, mainly due to difficulties or unwillingness by investors and financiers to commit FIDs [final investment decisions].
New onshore exploration blocks on offer are also experiencing problems finding takers. I specify “onshore” because offshore deep-water projects, be they oil or gas, are indeed attracting participation and funding, as is happening in Tanzania and Mozambique.
Two reasons explain the capital’s shyness to fund onshore oil projects. Firstly, climate and investor activists are weaponising the carbon footprint ranking of oil projects to block investments.
We also see investment opposition from activists acting as protectors of communities directly impacted by oil projects.
However, it is the ongoing global energy transition that is dissuading investor participation in new onshore oil projects as future oil demands become uncertain.
Specifically, investors are unwilling to fund expensive long lead-time onshore oil infrastructure. They prefer offshore deep-water oil and gas projects which use multi-purpose floating infrastructure which is cheaper and quicker to instal, thus reducing project implementation costs and timelines while improving economic payback.
The crude oil pipeline traversing Uganda and Tanzania is facing delays in reaching FID mainly due to the withdrawal of funding by European banks, apparently under duress from climate and environmental activists.
Strong participation by multinational TotalEnergies, Chinese government company CNOOC, and the governments of Uganda and Tanzania will certainly see the project to the end, with likely debt funding from the more pragmatic Chinese sources.
However, the western Uganda refinery project appears headed for funding problems as anchor investment partners fail to meet critical commitment deadlines.
The Turkana oil project in Kenya is facing real funding headwinds as two investors (TotalEnergies and Africa Oil ) cut losses and withdraw, leaving a capital-challenged Tullow Oil to seek strategic investors to fund production development and export pipeline.
My gut feeling is that Kenyans have resigned themselves to leaving Turkana oil as a stranded asset, going by low prioritisation of the project by the government.
South Sudan is a pathetic situation for a country with the largest oil reserves in the region. The country funds 80 percent of the national budget with revenues from oil that has declined by half to about 170,000 barrels per day over the past 10 years.
There are no ready takers for a number of exploration blocks on offer, for the same reasons that are hampering new onshore oil investments.
For economic and political sustainability, the country should develop alternative economic resources.
The writer is a petroleum consultant. [email protected]
