Is the East African Crude Oil Pipeline a dead deal!


The world recorded another day in history —April 20, as the day oil prices globally took a negative dive, dropping below zero for the first time. International players in the hydrocarbon game have not shaken, as traders and nations pursued storage space and determining ways to drive demand scarcity.

According to reports from Bloomberg News, the oil price rise was manifested by both, pandemic fears and the price war between Saudi Arabia, Russia and the US, which affected the energy markets and traders.

As the pandemic escalates, the umbrellas of lockdowns have annihilated significant demand for oil, and other economic gains associated. Hence—the price war broke and intensified, as Bloomberg report said “  Saudi Arabia and Russia, the world’s biggest oil producers, escalated the price war. A pact that had restrained production collapsed and both countries opened their taps to the fullest, releasing record volumes of crude into the market”

However, on Tuesday, April 22, Bloomberg reported that the prices of actual barrels of multiple crude streams in Europe, Asia and Africa have plunged to as little as $5 a barrel, dragging down the entire physical oil market and increasingly distressing major producers.

As the benchmark price of crude fell, a rather harsh intervention by U.S President Donald Trump sought to drive up oil prices.

“I have instructed the United States Navy to shoot down and destroy any and all Iranian gunboats if they harass our ships at sea,” read U.S President tweet, which sparked the rebound on oil prices.

This reaction came after tensions rose in the Middle East calling for an intervention. The U.S which has already confirmed over 849,000 cases of the virus, and nearly 48,000 death, saw investors weighing in on Thursday on the latest signs of the pandemic impact on the world’s economy, thus—the crude oil price in New York rose to $15 a barrel.

The intermittent enemy with Iran and the potential of a US strike in the Persian Gulf always has a way of driving oil prices back up.

But with the price of oil standing at $37/barrel, the tumbling the West Texas Intermediate (WTI), rose by almost 19 per cent to $13.78 a barrel according to information from Financial times, as the hint of instability grew in the Middle East.

Further, Financial times reported that Brent rose almost to $22.45 a barrel and rested at $20.37, up more than 5 per cent on the day.

All this debacle is unfolding when the world is operating on a lockdown mode, due to the global coronavirus pandemic (COVID-19), which has been attributed with the historic oil price plunge.

The situation stands slightly precarious, as East Africa, namely Kenya, Uganda, Tanzania and of course the newcomer, South Sudan seek an intrinsic dependency to be players in the global game of pumping black gold.

The situation in East Africa

East Africa is racing against time to break even in the oil and gas industry. Kenya became the first country to export oil abroad, with its 560 million barrels, Kenya stands to reaps benefits. Same applies to the $ 3.5 billion crude oil pipeline, involving Uganda and Tanzania—which is still on hold after-tax disputes.

This week’s oil price situation and the current dynamics of the Corona outbreak, begs the question, as to whether these oil-dependent East African nations are positioned advantageously or have they bet too much on the elusive dream of becoming part of the oil-producing nation’s club.

While the drop in the price of crude shocked world markets, energy majors in Uganda finally concluded a year-long deal, with the signing of the sale of Tullow Oil Plc’s assets to French-based to Total SA the first step in an asset-sale program that’s crucial to reducing its debt.

The shares jumped the most on record, according to information from Bloomberg.

According to an expert from the East Africa Business Council (EABC), the plunge in oil posed no threat either to the East Africa Crude Oil Pipeline (EACOP) project indicating that “ the WTI price fall does not determine things here” but highlighted the fact that “ if things prevail as they are due to the current landscape, then future oil prices might be affected” he added.

The EABC expert further stated that they don’t believe “it will have much of the effect on oil prices in East Africa, What happened (with the oil price plunge) was simple.  May Future Contracts for WTI (Us Crude Oil)  which were set to expire, hence (there was) no demand for these contracts again, and with overproduction and lack of storages for the crude oil caused the May Future Contracts for WTI to trade negatively, but now June contracts are being traded on just perfect prices although it will take long for them to trade on the highs, I think they will be opened around $ 18-20  per Barrel of Oil” the council expert argued.

In the same vein, according to the Vice Chairman of the Tanzania Oil and Gas Suppliers and CEO of the Ocean Business Partner Mr Abdulsamad Abdulrahim, aligned his thoughts to the EABC’s.

“I can’t say more until OPEC sits, but what I know for sure, as long as you have the resources in the ground, you are viable to execute anything over time,” he said.

Abudlrahim, who has also co-organized three consecutive national oil congress’ in Tanzania, attracting top-notch actors, said: “it is time for Africa to reinvent itself in this landscape, and think of diversifying its talents into refinery and production of other end-products.”

In that context, the Tullow oil deal with Total has stood at a mere $575 million.  Which is considered a rather a steep discount on its original 2017 deal — which was stymied by tax disagreements — but includes more cash upfront and stands to be a relief to Tullow after a calamitous year, according to Bloomberg.

In light of this, the development of the East Africa Crude Oil Pipeline (EACOP), shows light at the end of the tunnel. The goal is for the pipeline to continue operations and hopefully, both Uganda and Tanzania will benefit from the production of crude.

According to Eng.Kapuulya Musomba the General Manager of Tanzania’s Tanoil, a subsidiary company of the national petroleum company, said that the current pandemic dynamics hurt the way oil industry operates and it is a matter of time until the situation is “known for sure in this part of the world”

Reports indicate that the Uganda transaction will include the East African Crude Oil Pipeline deal, and thus Total will finally take control of the full energy value chain in between Uganda and Tanzania. The profitability is only viable when Brent prices stand above $62 a barrel. With current prices at nearly $20/barrel, the unprecedented fall may still jeopardize the pipeline, but its still too early to tell.

Officials at Tanzania Petroleum Development Company (TPDC) and Energy and Water Utilities Regulatory Authority (EWURA) could not be reached for comment.


READ: Africa’s China-led common-man economy in turmoil as it awaits Coronavirus landfall


Padili Mikomangwa is an environmentalist based in Tanzania. . He is passionate about helping communities be aware of critical issues cutting across, environmental economics and natural resources management. He holds a bachelors degree in Geography and Environmental Studies from University of Dar es Salaam, Tanzania.

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