Oil prices have recorded the strongest start to a calendar
year since 2014 when the cost of commodity took a sharp dip on weak demand, a
strong dollar and a boom in shale production in the US.
Crude prices opened 2018 at over $60 a barrel thanks to
collaborative efforts between the world’s largest producers, Russia and Saudi
Arabia.
In a meeting in Vienna in May 2017, the Organisation of the
Petroleum Exporting Countries (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 US crude inventories
have dropped by over 20 per cent from the highs recorded in March last year.
The current deal among the producers is to cut supply by
about 1.8 million barrels per day (bpd) in an effort to boost oil prices.
However, there is high likelihood of another price collapse if the producers in
the US 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.
Forecasts showed there will be an increase in oil and gas
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.
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 kilometre 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.
Kenya will equally be speeding up plans for the construction
of an oil pipeline from the 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.
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.
In 2018, there may be as much as $200 billion worth of
greenfield offshore and onshore projects ready to be sanctioned globally.
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.
Source: Business Daily Africa