By Olad Hassan

East Africa is believed to have one of the biggest oil deposits in the world. Companies, both western and Asian, are hunting in earnest for oil and gas in the region. East African countries are experiencing one of the highest levels of investment in the world right now. However, year long conflict and political instability made the region to one of the riskiest places for local and foreign investment. Mainly due to the region’s trouble zones, the Horn of Africa and the Sudan Region of Darfur, which are believed to have the biggest deposits in natural resources.

Somalia.

Somalia has been without a functioning government since 1991, when former Mohamed Siad Bare’s Regime was over thrown.

In a 1991 a World Bank coordinated study intended to encourage private investment in the petroleum potential of eight African nations, Somalia and the Sudan topped the list of potential commercial oil producers.

The earliest indication of oil in Somalia was a large oil seep southeast of Berbera and several other seeps in various locations of the Somaliland province which considers itself independent from the rest of Somalia.

However, early exploration concentrated on an anticline structural approach since this had met with success in the Arabian Peninsula it took the oil companies a number of years to abandon this approach in Somalia. There is no evidence of large scale compressive folding in Somalia and the anticlines in the north of the country appear to be associated with the Miocene separation of Africa and Arabia and hence post-Mesozoic and early Tertiary oil and gas accumulations. Therefore, hydrocarbon accumulations must be sought in older structures and strata graphic traps.

Puntland, remains one of the last under-explored regions that have high potential for vast reserves of hydrocarbons. During the late 1980’s the State was divided into a number of concessions for oil exploration. Significant exploration was undertaken but this effectively ceased due to political instability that arose in 1991. However, there exploration activities have never ceased for good.

For example Australian exploration company Range Resources LTD. has been conducting studies on the mineral resources of the region during 2006 with a team of geologists based in Bosasso on the northern coast. The geological work has identified the potential of large silver rich lead zinc deposits analogous to the Jabali deposit in southern Yemen.

The agreements that Range Resources has entered was followed by intense negotiations between the Parties and their legal advisors. As part of this process the Parties have satisfied themselves that all previous mining concessions have lapsed.

The government of the semi-autonomous Puntland province has given Range Resources of Australia and Canmex Minerals of Canada joint E&P rights in parts of the region. The exploration period of its Somalia oil projects have been extended from 36 months to 48 months with the Somalian authorities, this is positive news as both sides see a reason to continue exploration in the area.

China National Offshore Oil Corporation’s (CNOOC) deal covers another part of Puntland and was endorsed by former President of Puntland and Somalia, Abdullahi Yusuf Ahmad, who hailed from the province, even though the transitional government’s authority there is tenuous. The prime minister himself has questioned the validity of the Chinese agreement because it was signed before the new oil law was in place.

The war torn nation is now under the eyes of Investors. Early 2007, the state-owned Chinese oil giant has signed a PSA with the former Somali Prime Minister, Ali Mohamed Gedi a, which ranks as a high-risk frontier even in an industry well accustomed to dangerous environments.

Kenya.

The East African republic of Kenya has no known oil or gas reserves. The Kenyan government is encouraging foreign interest in oil exploration and there is a modest upstream oil industry. It is endowed with other energy sources including wood fuel, coal, solar and wind power, much of which is untapped. The country’s commercial energy needs are supplied by electricity, coal, fuel wood and oil-derived products

Petroleum is Kenya’s major source of commercial energy and has, over the years, accounted for about 80% of the country.s commercial energy requirements. Demand for oil in Kenya is quite small due to the country.s underdeveloped economy, which is heavily dependent on labour intensive and rain-fed agriculture systems. The domestic demand for various petroleum fuels on average stands at 2.5 million tons per year, all of it imported from the Gulf region, either as crude oil for processing at the Kenya Petroleum Refineries Limited or as refined petroleum products.

Uganda.

Also in nearby Uganda, there is euphoria over oil discoveries as the region is sailing up as a new hydrocarbon producing zone attracting foreign investments. Early 2007, Ugandan President Yoweri Museveni used the national thanks-giving service day in the capital Kampala to announce the discovery of oil in his country by London based explorer Tullow Oil. This discovery followed several years of the country’s painstaking search for oil.

The prospect Uganda becoming an oil producing country soon has caused a lot of excitement among many Ugandans. Even the government has boasted of the possibility of import savings of about a billion dollars (almost 2 trillion shillings) a year if the country’s oil needs are met from domestic oil supply, freeing much needed foreign exchange, and even of the possibility of Uganda becoming a net oil exporter.

This follows the confirmation Hardman Resources; an Australian drilling company working in conjunction with Tullow Oil from the United Kingdom, that Uganda has the capacity to produce oil to a tune of 10,000 barrels per day.

The world’s current oil consumption stands at 80 million barrels of oil per day having gone up from 65 million barrels per day (bpd) over the last five years. This jump in demand is a result of China and India’s rising demand of oil. Locally, Uganda’s demand for oil products is also rising at a rate of 6 % per day. Last year, Uganda consumed 700,000 cm of petroleum products worth $250 million. Per day, the country’s fuel needs stand at 50,000 cm (1,000 litres make up 1 cm). Per capita consumption of petroleum in Uganda has grown from 16 litres in 1991 to 24 litres at end of 2004 and that figure must be higher now.

At the cost of $70 (about 125, 000 shillings) a barrel, the average current price, 4,200 barrels a day from Waraga 1 would generate about $294,000 (Shs 546m) a day and Shs 199.5 bn annually just from one well.

Eritrea.

Eritrea is Africa’s youngest nation, having gained its independence from Ethiopia in 1993. It lies to the north of Ethiopia and forms part of the North East African Region. The two-year war between Eritrea and Ethiopia that began in 1998 has badly affected Eritrea’s economy, as Ethiopia was one of Eritrea’s major trading partners.

Eritrean mining and oil resources might soon become key elements of the countries economy. Two mining companies, Nevsun Resources and Chalice Gold, have announced to start within the next two years gold production in the Red Sea State. This will add Eritrea to the list of mineral exporting countries in Africa. Several other companies such as Sunridge Gold Corp. and South Boulder Mines have also projects and mining assets in Eritrea.

Oil resources in Eritrea are believed to be substantial although there is little information available in this regard. In 2008 the Government of Eritrea signed two agreements with Defba Oil Share Company on oil exploration and development. The company is supposed to undertake oil exploration activities in two blocks of the Eritrean northern territorial waters. The Defba Oil Share Company has been set up through the partnership of the Eritrean government and Energy Alliance Company W.L.L.

Hydrocarbon exploration, primarily offshore in the Red Sea, began in the 1960′s when Eritrea was still federated with Ethiopia. In 1995, Eritrea signed a production sharing contract (PSC) with U.S.-based Anadarko Petroleum (Anadarko) for the offshore Zula Block. Anadarko signed a second PSC for the offshore Edd Block, located south of the Zula Block, in September 1997.

Anadarko announced, in December 1997, that it had reached an agreement with ENI/Agip (Agip) to swap interests in exploration acreage. Anadarko received a 25% interest in a Tunisian block operated by Agip, and Agip received a 30% share in the 6.7-million acre Zula Block and 30% interest in the Edd Block. Burlington Resources, a U.S.-based independent, later joined the consortium by acquiring a 20% interest in both acreages. Anadarko’s first two exploration wells, both drilled on the Zula Block, were unsuccessful. In January 1999, a third dry well, Edd-1 on the Edd Block, was drilled. Citing the disappointing exploration results, Anadarko and its partners ceased exploration activities and relinquished their rights to the offshore blocks.

Ethiopia.

Ethiopia is endowed with energy resources such as coal, biomass, solar energy and natural gas and is not a great consumer of petroleum fuels. Current natural gas reserves are estimated to be 24 million cubic meters.

Just recently Ethiopia signed an oil exploration agreement for petroleum onshore development in the Ogaden Basin with Sweden- based Lundin East Africa Bv. There are in total 11 foreign companies exploring Oil in Ethiopia including Africa Oil Corporation, South West Energy and Malaysia’s state-owned Petronas. The Ethiopian government has announced that it will offer further 14 licences for oil and gas exploration over a period of three years starting from 2009.

In June 2003, the Ethiopian government signed an oil exploration deal with Malaysian company Petronas for 5,800 square mile tract in Gambela, in the far western part of the country. The region is closely related the Sudan oil fields. Petronas has committed to investing in regional infrastructure, employing local staff, improving health services, and developing the skills of the ministry of Mines. Petronas is also interested in natural gas exploration in Ogadenia region.

Ethiopia is totally reliant on imports to meet its petroleum requirements. Some petroleum imports are received at the port of Djibouti, and shipped via rail and tanker truck to Ethiopia. With the recent development of oil in Sudan, however, Ethiopia has begun importing oil which, under COMESA, is not subject to tariffs. Oil imports from Sudan began in January 2003 transported by tanker trucks along a new road between the two countries.

Petronas, is going to drill three oil exploration wells in Ethiopia’s Ogaden basin. They have hired a Dubai-based exploration company to replace China’s Zhonguyuan Petroleum Exploration Bureau, which refuses to go back to the region, after the Ogaden National Liberation Front, an ethnic Somali separatist group, attacked a Chinese-run exploration site, killing 65 Ethiopian and nine Chinese.