East African countries will not benefit significantly from the dropping global oil prices, new study has revealed.
The study conducted by Deloitte East Africa divulged that lack of adequate storage facilities in these countries will mean that the region could miss out on a chance to accumulate cheap stockpiles of the rare commodity whose price has fallen drastically in the last few months.
The price drop has been attributed to reduced demand in many countries due to dull economic growth and global oversupply; and successful fracking, a process in which rocks are fractured by a hydraulically pressurized liquid made of water, sand, and chemicals, that has revolutionized oil production in the US and reduced her dependency on oil imports.
“The plunge in prices of oil has rekindled the debate whether lower prices are cascading down to drivers such as the cost of electricity (generated from fossil fuels) and if travelers are feeling the benefits. When global prices go up, we usually witness the meteoric increase in prices of petrol and all sectors that depend on petroleum products like manufacturing and transportation,” says Joseph Thogo, Senior Tax Manager at Deloitte East Africa.
Many developed countries have sourced alternative sources of energy, hence reducing their overdependence on oil imports. As a result, oil prices have dropped below Ksh 4572.02 a container for the first time since May 2009.
The research note titled ‘Falling Oil Prices – Winners and Losers’ singles out the aviation industry as a major beneficiary of the slump in global oil prices. Estimating that airlines’ and fuel bills, which account for the bulk of their operating costs, could drop by up to 13%.
Motorists in East African countries are not privileged, as the dropping prices is not matching with the movements in oil prices. Energy companies nevertheless argue that they buy oil in advance, thus the prices drift down slowly when the global oil prices are on a downward decline.
On the flipside, the note argues, the slump in prices could slow down ongoing oil exploration projects in the region, as firms defer new projects with the expectation of higher prices in future.
“In the past few months some firms exploring for oil and gas in Kenya had announced plans to cut their budgets or scale down operations, citing unfavorable market conditions brought about by the declining prices of crude oil. In Tanzania some players are scaling down their offshore exploration campaigns. This indicates that the projected timeframe and the viability of some of the envisaged projects in East Africa will have to be reconsidered,” adds Mr Thogo.