The massive untapped potential of East Africa’s oil reserves

Oils reserves in Sudan, including South Sudan, where the largest oil fields are located, remain underutilised, largely due to war and conflict. Meanwhile, lack of stability has curbed potential foreign investment in East Africa’s oil fields.

Ewan White

Oil reserves in Sudan and South Sudan remain underutilised, largely due to war. Meanwhile, lack of stability has curbed potential foreign investment in East Africa's oil fields.

The massive untapped potential of East Africa’s oil reserves

Faisal Faeq

last update on 26 May 2023

According to data from the US Energy Information Administration, proven oil reserves of Sudan and South Sudan equal 5bn barrels, but production has remained stagnant in recent years despite efforts to boost it from old wells and desperate attempts to attract foreign investment amid reluctance by international oil companies due to the lack of political and security stability in the land.

The governments of the two countries were supposed to finally start providing license term books to foreign investors with the aim to increase production and revenues – Malaysia’s Petronas owns the majority of the main assets of oil exploration in South Sudan.

Oil production affected by war

South Sudan’s crude oil production has fallen to 150,000 bpd, according to estimates by Plats, an agency owned by Standard & Poor’s Global, compared to 350,000 bpd, which South Sudan used to produce before 2013, when its civil war broke out and destroyed production facilities in most oil fields.

Since 2018, South Sudan has been trying to reopen the fields in the hope of returning to pre-war production levels.

In Sudan, due to limited production, the ongoing fighting may not raise concerns about its impact on global oil supplies, as the country produces only 60,000 bpd – although it is among OPEC+’s producers.

Getty — Workers belonging to a Chinese company near a drilling rig at an oil field in Upper Nile, Sudan.

Sudan and South Sudan oil is mostly exported to Asia where it is refined in China, India, Malaysia, and Singapore.

Sudan also relies on the import of petroleum products because there are no sufficient refining facilities to meet domestic demand.

The latest outbreak of war in the country this April has reinforced fears that imports of these derivatives, most notably gasoline and diesel – the most widely used in Sudan and South Sudan, where the total fuel consumption in the two countries reached about 150,000 bpd in 2016 and has remained at this level since then – could be affected.

The latest outbreak of war in Sudan this April has reinforced fears that imports of oil derivatives, most notably gasoline and diesel, could be affected

There have been no reports that Sudan's oil production or export infrastructure has been damaged since fighting broke out on 15 April.

South Sudan: Lack of experience and storage capacity

South Sudan's oil industry remains dependent on foreign investment, and the country is struggling to develop, finance, and staff a viable oil sector that could provide a muchneeded economic foothold for the impoverished country.

After South Sudan's independence, most of the largest oil fields of the pre-breakup country now lie in its territory near the border with Sudan. South Sudan lacks experience and money and is largely dependent on foreign aid.

South Sudan currently has no significant storage capacity and relies on a pipeline linking its fields to the Red Sea through Khartoum to export crude under the Interim Financial Agreement, signed after South Sudan's independence in 2011.

In return, Juba pays Khartoum fees to ship its oil to international markets. Most of the storage facilities for crude oil and refined products in Sudan are located in the Red Sea port of Al-Bashayer, where Al-Bashayer Offshore Terminal has a storage facility, an oil export facility, and an oil derivatives import facility.

There are unconfirmed accusations that some oil barrels were smuggled into Sudan's refinery without the approval of South Sudan, which relies on oil revenues for 95% of its national budget.

Some statements from the South Sudanese government talk about the purchase of land in the small coastal state of Djibouti to build a new export terminal, while other news circulates about plans to build a separate pipeline that would allow South Sudan to export crude oil to the port of Lamu in Kenya on South Sudan's southern border to avoid transit fees and provide an alternative route for exports.

The port of Lamu on the Kenyan coast is an important part of the regional cargo transport network. However, both plans remain vague due to the lack of foreign funding for the project, especially in light of political instability.

Uganda, Kenya, Tanzania: Expansion of energy projects

East African countries – Uganda, Kenya, and Tanzania – have developed significant expansion plans for their upstream and downstream activities; these countries are currently dependent on imports of petroleum products to meet domestic demand.

To be sure, these expansions are dependant on investments by international oil companies from Europe, China, and Canada.

AFP — A general view of the new Kipevu Oil Terminal at Mombasa Port in Mombasa on January 6, 2022. China's Foreign Minister Wang Yi will tour Beijing-funded infrastructure projects in Kenya and discuss future economic opportunities.

Oil reserves on the Ugandan side of Lake Albert are estimated to be between 3.5bn and 4bn barrels; on the Congo side, the reserves are estimated at 2bn barrels.

Kenya's reserves are close to 1bn barrels of oil in several oil fields in the north of the country. Tanzania's natural gas reserves are estimated at about 5tn cubic feet, according to Reuters, but huge investments will be needed to move forward in the development of production projects and transport, export, and refining facilities.

Tanzania's natural gas reserves are estimated at about 5tn cubic feet, but huge investments will be needed to move forward in the development of production projects and transport, export, and refining facilities.

However, political and security instability in each of East Africa's countries will push global oil companies to reconsider their investments.

Data released prior to the Covid-19 pandemic indicate that more than 140mn people don't have access to electricity in East African countries.Therefore, there's a promising market for increased consumption of refined petroleum products for electricity generation, especially diesel.

However, lack of investment and slow urbanisation in some countries in the region will constrain market growth there and exacerbate the energy deficit.

In addition, East African citizens are suffering from the continued rise in the prices of petroleum products locally to astronomical levels even as prices fall globally.

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