E.Africa urged to build oil storage facilities

A global consulting firm, Deloitte East Africa, on Monday called on East African countries to set up oil storage facilities to benefit from falling global oil prices.

The firm said in its latest study released in Nairobi that regional countries are unlikely to significantly benefit from falling global oil prices due to inadequate storage facilities.

"East African countries' failure to set up sufficient oil storage facilities will mean that the region could miss out on a chance to accumulate cheap stockpiles as is the trend abroad," says the study.

Global prices of crude oil have fallen drastically since July 2014, and naturally Kenyans, including their counterparts in East Africa region, expect the retail prices of petroleum to fall accordingly.

The global oil prices have more than halved, to stand at just below 50 U.S. dollars a barrel for the first time since May 2009.

Senior Tax Manager with Deloitte East Africa Joseph Thogo called for the need for the benefits of the lower prices to trickle down to end consumers.

"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," he said. "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."

In its January review of energy process, Kenya's Electricity Regulatory Commission (ERC) reduced prices of super petrol to 1.02 U.S. dollars per litre, diesel to 0.91 dollars per litre, and kerosene to 0.72 dollars per litre.

But consumer rights lobby group later called on the government to further drop retail fuel prices, saying the latest prices were not a fair representation of the would-be actual pricing.

The latest fuel price drop is the highest since the ERC was set up four years ago. The regulator took into account the weighted average cost of imported refined petroleum products which necessitated the reduction.

However, Mutoro said even when weighed against prevailing weaker shilling and fixed taxes, the usual excuse of time lag between purchase and actual landing is unconvincing.

Motorists in East Africa have complained that the drop in pump prices is not commensurate 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.

The report, however, 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 have announced plans to cut their budgets or scale down operations, citing unfavorable market conditions brought about by the declining prices of crude oil," Thogo said.

In Tanzania, he said, some players are rescheduling or scaling down their often expensive 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."

"The key area for oil and gas companies is the break-even price, which is the price where the cost of per barrel oil production is equal to the selling price per barrel of oil," he said. Endi