Focusing on the Upstream Oil and Gas Industry  in 2018

By Joe Watson Gakuo

Happy New Year! It is a great time to be alive and if you are reading this, you made it to 2018. The views expressed here are about a significant the oil and gas resources, that have been discovered in the East African region.

Allow me to share with you my thoughts on what to expect from the upstream oil and gas industry, which in turn will affect your day to day life as you know it.

Oil prices have recorded the strongest start to a calendar year since 2014, with crude oil opening at over $60 a barrel. For the un-initiated, the prices of oil collapsed from almost $120 a barrel in June 2014 due to weak demand, strong dollar and a booming shale production in the United States.

Saudi Arabia and Russia

The worlds biggest oil producers, Russia and Saudi Arabia, have continued to strengthen their collaboration in the oil and gas industry. This is one relationship that we should watch closely because it signals a strategic partnership between two oil-rich states.

These two countries have taken a pole position in the last few months, cooperating in ensuring that prices are propped up. Saudi Arabia is very intent on listing Saudi Aramco, and as such they will be quite motivated to keep the oil prices going up as they head towards the privatization.

The risk to this outlook could become apparent if Russia stops cooperating which has been a significant tipping factor in the production cuts.

Oil Production Cuts

In a meeting at Vienna, Austria in May 2017, 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 United States crude inventories have dropped by over 20% from the highs recorded in March last year.

The current deal among the producers is to cut supply by about 1,8 million barrel per day (bpd) in an effort to boost oil prices. However, there is high likelihood of another price collapse if the producers in the United States 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.

Oil and Gas Project Sanction

It is forecasted that there will be an increase in 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, This is a boom to the supporting ecosystems

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 kilometer 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.

In Kenya will equally be speeding up the process that will see the construction of the crude oil pipeline from 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

Moving Forward

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. Overall, this makes the industry better and more efficient.

In 2018, there may be as much as $200 billion worth of greenfield offshore and onshore projects ready to be sanctioned. 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. This has already been felt with adjustments that Energy Regulatory Commission made in their last updates in November and December, 2017.

Given the global and regional geopolitics, and economics, 2018 promises to be very interesting in the upstream oil and gas industry in East African region with the first ever upstream awards to be held in June in Nairobi, Kenya, and you are invited to consider learning about the industry or participating in it. Have a great and successful year.

 

The writer is the Chief Executive Officer of Upstream Oil & Gas Ltd, and Founder, Upstream Awards