Tanzania:Oil Down, Opportunities Are Up
The oil price has been falling since June 2014. And it continues to hit new bottom every day.
Recent global oil price drop sign several years of $ 100 per barrel which has led to massive oil production coming online and supply exceed demand. The low demand is the result of the slowdown in China’s economic activities .And rapid increase in a number of shale wells in the US thanks to technology’s improvement.
The price slump hurt exporting countries but for Tanzania as an importer, it brings prosperity.
In the positive sense,
Cheap price minimizes the living costs. And Tanzanians are more likely to use kerosene, diesel and cooking gas in place of firewood and charcoal that are popular with low-income earners.
However, it reduces transportation costs. Less costly foods. And low living costs for average Tanzanians.
Most importantly, production costs decrease. Many people available globally at low costs than ever. Pipelines firms are in need of work. Major construction organizations have little tasks.So the project should get low investment costs than similar projects from 2-3 years in the past.
In the context of low price, upstream activities are decreased and there’ll be easy availability of drilling rigs and other supporting activities with cheap costs.
In the negative side.
Undermine investment: Exploration and production companies cut costs range. So, going into the new finding works won’t be of interest in their strategy. And they’ll be wanting to postpone important investment project, which will take years to show valuable earnings. If the project has a risk, It might be better to get the same cash in a known project field, than try to create in a new, unknown field with lots of business risks.
However, some exploration and production companies such as BG and Swala energy claim that the drop in costs is a short-term issue and won’t considerably impact their investment plan in Tanzania.
Australia based oil and gas exploration firm (Swala energy) lately stated that it’ll continue with its exploration projects across Tanzania in 2016 despite the fall in oil price. Also low-level prices are damaging Tanzanian Graduates who strategy career in oil and gas sector. Sadly, Tanzanians get laid off as the oil firm’s strategies to deal with a price drop.
Conclusion
The price has fallen dramatically and some supply will go off-line finishing the gap until the price improves again. But the time of that process is incredibly uncertain and is expected to persist in 2016 and maybe beyond. But for policymakers in Tanzania, the fall in oil price provides a period to execute economic plan and structural changes as well as finance social program.
Hussein Boffu
Graduate In Petroleum Geoscience
Hussein.Boffu@tanzaniapetroleum.com
0655 37 65 43
