Columnists

Year holds great promise for oil and gas industry

Oil prices have recorded the strongest start to a calendar year since 2014 when the cost of commodity took a sharp dip on weak demand, a strong dollar and a boom in shale production in the US.

Crude prices opened 2018 at over $60 a barrel thanks to collaborative efforts between the world’s largest producers, Russia and Saudi Arabia.

In a meeting in Vienna in May 2017, the Organisation of the Petroleum Exporting Countries (Opec) and non-Opec producers agreed to continue with crude oil production cuts until the end of 2018.

The cuts which started in January 2017 are meant to clear the global over supply. It is also worth noting that the US crude inventories have dropped by over 20 per cent from the highs recorded in March last year.

The current deal among the producers is to cut supply by about 1.8 million barrels per day (bpd) in an effort to boost oil prices. However, there is high likelihood of another price collapse if the producers in the US increase production due to higher prices.

The crude oil export limitation agreement between Russia and Saudi Arabia has been a success in strengthening the crude price and also in market rebalancing, removing the volatility out of the system.

Forecasts showed there will be an increase in oil and gas projects from the 2015 low. The continued recovery of the upstream companies will lead to an increase in their production which will help the midstream and the oilfield services businesses.

Within Kenya and East Africa, the oil and gas exploration companies will continue with their upstream activities motivated by rising oil prices, as well as embark on the development phase in Turkana in Kenya and Hoima in Uganda.

The proposed construction of 1,445 kilometre long crude oil pipeline is due to commence this year. From Hoima in western Uganda to Tanga sea port in Tanzania, the pipeline is designed to carry 216,000 barrels of crude oil daily.

Kenya will equally be speeding up plans for the construction of an oil pipeline from the Turkana oilfields to Lamu. A joint development study agreement has already been signed. The 865 km pipeline will cost Sh.210 billion and expected to be complete in 2021.

During the 2014/2016 period, over $1 trillion was taken out of industry spending from 2015 to 2020. This means that cuts are over and upstream companies will seek to grow their profitability and operate at lower prices.

In 2018, there may be as much as $200 billion worth of greenfield offshore and onshore projects ready to be sanctioned globally.

For example, Saudi Aramco has announced plans to invest $300 billion in upstream oil and gas projects over the next 10 years. With these investments, the oilfield services sector is expected to continue recovering in 2018 in tandem with the increase in the oil prices.

In Kenya, it is highly expected that the Local Content Bill will be passed and signed into law in 2018. This law is long overdue as it is meant to strengthen existing legal framework.

This bill introduces a raft of rules and guidelines into the country’s nascent upstream oil and gas industry, as a means of protecting and promoting local growth.

The global rise in crude oil prices will mean that you as a consumers and motorists will fork out much more from your pockets for fuel or petro-related products.

The average landed cost for the products increase with the increase in the crude oil prices. It would a double tragedy if the Kenyan shilling was to weaken during the course of the year.

Joe Watson Gakuo is chief executive officer, Upstream Oil & Gas Ltd.