The oil prices fall from over $ 100 per barrel In June 2014 to under $ 29 per barrel in January 2016. We have seen the oil price downturn is counting. And nobody knows for sure when the price will recover.
The simple truth is oil price crash has both good and bad consequences to the national economy and oil and gas sector in Tanzania and East Africa.
Effect of Low Oil Price In Tanzania’s oil and gas industry
Tanzania oil and gas value chain has four segment, exploration, production marketing and distribution of oil and natural gas.
The low oil prices affect each of these segment differently. The low oil prices discourage exploration activity. But the higher oil price is the primary motivation for the exploration, development and drilling activity. Tanzania involves two types of oil and gas companies:
1.Major oil and gas companies- These are companies involves in everything from discovering, developing, producing and marketing of oil and natural gas products. Such as Royal Dutch Shell
2.Small or independent oil and gas companies- They only discover, develop and extract natural gas. Example are Uk- based firm Aminex
To cope with low oil prices, major gas companies such as shell may shift investment on the downstream segment of the oil and gas industry- refining, marketing and distribution of petroleum product so as they can benefit from the low petroleum products prices.
They can shift to other oil and gas producing countries, and small gas field being left to small gas companies. The low oil prices may have a severe negative impact on small, independent oil and gas companies because they don’t have such options of shifting the investment to the downstream segment of the industry
When oil prices increase, exploration activity flourishes in the country. The number of rigs is also doubled.
But good prices alone won’t increase exploration drilling and development activities. The key motivators for exploration and development activity to flourish are a good profit.
And this is achieved by reducing production cost. To minimize production cost, companies should develop exploration and development technology that can do more with. Increase efficiency of exploration and development field through good geological knowledge.
And the decision makers should implement policies that associate with risk to explore and develop gas and oil field incurred by small oil and gas independent operators such as tax and investment incentives.
Since the oil and gas sector in Tanzania and East Africa are dominated with small, independent oil and gas companies, good policies should be implemented that associate with risk to explore and develop gas and oil field incurred by small oil and gas independent operators.
To increase profit and make exploration activity more attractive, decision makers should improve tax and investment incentives.
The Effect Of Low Oil Prices In National Economy
The lower oil price s has an impact not only on the oil and gas industry but to the entire economy. The simple truth is that what may be bad for the oil and gas sector is good for state economy or vice versa. The positive effect in decline oil prices is less money is spent in importing oil and related petroleum products.
Tanzania does not produce oil, so we are a net importer of crude oil and refined petroleum products. Drop in oil prices means that less money is invested in the importing of the products. Direct and indirect job losses are bad consequences to the national economy. The job losses in the oil and gas industry may increase health expenditures.
The lower oil prices reduce foreign direct investment in the exploration and extraction of oil and gas, the government might millions of dollars that would come from tax and royalty revenue
The oil prices fall from over $ 100 per barrel In June 2016 to under $ 29 per barrel in January 2016. At the end of 2017, we saw supply and demand rebalance.
And in the mid of 2018, the outlook looks bright as company start to spend again.
The Royal Dutch Shell drilled exploration offshore well in Tanzania but found no oil and gas. Also, Norwegian Statoil has drilled offshore well in Tanzania.
And Uk-based firm Amnex , announced to go forward with the drilling program of its onshore well Tanzania.
So companies have started to spend money again. And that’s is good news for everyone in the energy sector. The Tanzania oil and gas outlook looks a lot brighter than the past two years