Why East Africa’s oil & gas should remain underground Too little, too late…? Aidan Eyakuze Executive Director Twaweza East Africa

“Oil & Gas: Cure for Poverty?” 18 companies drilled 30 offshore coastal areas in Kenya, Tanzania & Mozambique. Only 500 oil wells drilled (compared to 35,000 in West & North Africa), Estimated gas reserves of 100 TCF (20 bn barrels of oil). Tanzanian gas discoveries: 56 TCF (9.65 bn barrels of oil).

Oil and gas are scarce commodities! Demand for fossil fuels is insatiable! We’ll be swimming in cash! Three Assumptions!

(Wrong) Assumption #1: Oil & Gas are scarce commodities! Plenty of gas in the world (7,342 TCF in reserves) New technology (fracking, horizontal drilling) is extracting even more gas. If (when?) the US becomes a gas exporter, the whole global market changes

In 2013, global gas supplies exceeded global demand!

Oil prices have fallen by 50%+ since June 2014!

EAC to compete with US, Qatar, Australia, Nigeria & others for Asian markets

Russia fuels China for the next 30 years! Two deals signed in May & November 2014 mean China will import 2.4 TCF of Russian gas every year for next 30 years for a total of 72 TCF ‘Putin snubs Europe with Siberian gas deal that bolsters China ties’ Financial Times November 10, 2014

"To keep a good chance of staying below the 2 ◦ C… our emissions should drop by 40 to 70 per cent globally between 2010 and 2050, and falling to zero or below by 2100," Dr. Rajendra Pachauri, IPCC Chairman Wrong Assumption #2: There is Insatiable Demand

2,795 GtCO 2 - Earth’s proven reserves Welcome to ‘Unburnable Carbon’ 2°C Global carbon budget 2°C Global carbon budget GAS (13%) GAS (13%) OIL (22%) OIL (22%) COAL (65%) COAL (65%) 886 GtCO 2 ( ) 565 GtCO 2 ( ) UNBURNABLEUNBURNABLE UNBURNABLEUNBURNABLE Available to burn Already burnt ( )

Great Expectations! “Gas first! Politics later. Nothing leaves here.” Mtwara, Tanzania 2013

Wrong Assumption #3: We’ll be swimming in cash! Expected gas revenues for Tanzania $2.5 – $3.5bn per year (2025 – 40)!

Uganda: Expect a (very) modest “boom” “Managing a Modest Boom: Oil Revenues in Uganda.” “…there are not going to be any significant oil revenues for Uganda, even at current crude prices, any time soon. Even with production starting at modest levels as early as 2015; it will take until about 2026 before revenue climbs towards 5% of GDP (or just over one third of non-oil taxation). By 2030 it may be about US$40 per person in 2012 US dollars.”

Tanzania: ‘low risk of debt distress’ - IMF Public & private debt stock was TZS trillion ($17.96 billion) in March 2014; Plans to issue a debut Eurobond that could be worth up to $1 billion in fiscal year 2015/16. But… on p. 13 of the World Bank’s 6 th Tanzania Economic Update, we find fiscal deficit that is 1% higher than reported

“We are so rich! How come we are so poor?” “[the] country has to: (1) deal with its fiscal deficit problem in the short-term, so that (2)…it can seize the medium-term public revenue potential of its booming extractives sector –particularly oil and gas– while, (3)…it strategically spends current and upcoming revenues to tackle, long-term, inclusive, development needs.”

Ghana’s cautionary tale $750m Eurobond (4x oversubscribed) – Budget deficit (% of GDP): 4% (2011) to 12% (2012) – Public debt (% of GDP): 40% (2011) to 49% (2012) – Trade deficit: $2.15bn to $4.92bn from 2007 to borrowed $13bn from China (33% of GDP) for gas, roads, railway, water projects Another $750m Eurobond (3x oversubscribed) eurobond-update-idUSL6N0FV1H http:// eurobond-update-idUSL6N0FV1H

…and its $918m IMF bailout. (Feb 2015) “ Economic prospects at risk from fiscal, external imbalances, power shortages (eh?!) Reforms aim at tighter fiscal discipline (stop borrowing!), stronger public finances, lower inflation Government committed to safeguard social, other priority spending

Summary Are oil & gas scarce commmodities? – No! There is plenty around the world. Uganda and Tanzania are small players among many suppliers. Will there be a secure global market for EA’s oil & gas? – Cut-throat competition: EAC will compete with energy giants Russia, Qatar, Australia & US for Asian markets. – Unburnable carbon: Calls to leave fossil fuels underground to keep earth from dangerous warming are getting stronger  COP15 (Paris). – The future global gas market may shrink dramatically.

What are your expectations? Oil & gas for our future prosperity Optional?Essential?

Which one are you?

Thank You!