A New Frontier – the Rush for Oil and Gas in East Africa

When you stand on the island of Rukwanzi at the heart of Lake Albert, your first thought, echoing perhaps the casual rhetoric of the region's oil men, is that you are at the edge of a new frontier.

But for its communities the lake is a centre, a point of connection and integration, the great body of water into which the White Nile flows, part of the vast rift valley that draws Africa's citizens into mutual dependency. What happens here matters to half a dozen neighbouring countries. But the lines being drawn now, as neat and straight as the borders on colonial maps, mark not sovereign territory, but exploration blocks for oil and gas companies.

Just a few miles from Rukwanzi six Congolese were killed in September 2007, shot at by the Ugandan army while they travelled in a passenger ferry from the island to the DRC shore. It was revealed last week that Heritage Oil and Gas, the British wildcat explorer founded by former mercenary Tony Buckingham, played a key role in triggering that military operation after its staff had crossed illegally into Congolese waters.

The incident raises old questions about the dangers of resource extraction in the absence of regulation, accountability and transparency, just as the rush for hydrocarbons spreads to Kenya and elsewhere. But it provides a case study to test other dynamics too. UK Foreign and Commonwealth Office (FCO) emails obtained during the investigation into Heritage suggest a new rationale was shaping Uganda-DRC relations at the time, one that is continuing today.

Rather than see the incident as a casus belli on the disputed border that runs right through the lake, President Joseph Kabila sought to downplay it. Only two weeks previously he had travelled to Arusha, Tanazania, to sign an agreement with President Yoweri Museveni which, among other things, was designed to increase security cooperation and work towards a 'joint oil production zone' on the lake. These deaths, then, were untimely and inconvenient. They were therefore ignored.

The reckless actions of a British oil company could conceivably have led to war. That it did not reflects Congolese weakness and Ugandan calculation. There were fears in Kinshasa at the time that Jean-Pierre Bemba was likely to return from Belgium with Ugandan support. Laurent Nkunda's CNDP was engaged in its strongest offensive to date in North Kivu and the old Ugandan interventionist tendency was increasingly on show.

But diplomats and oil consultants have hailed the gradual improvement in bilateral relations between Uganda and DRC as a sign of the positive effect of shared commercial aims – progress from zero-sum war games to the kind of 'functional integration' that academics claim can soften inter-state rivalry.

They also point towards the oil and gas discoveries across the region – Tullow Oil's finds this year in Turkana, Northern Kenya being the most significant, joined by gas in Tanzania – as heralding a new era in which momentum for East African economic growth will be driven by hydrocarbon trade and infrastructure (an 'Eastern El Dorado' as The Economist put it) – rather than by grand aims and unmet timetables issued by the East African Community (EAC).

Regional resource curse

Speculative exploration is hardening into imminent production in Uganda but new discoveries elsewhere may begin a phase of competition rather than cooperation. Ugandan plans for a domestic refinery are predicated on the potential sale of oil products to the crucial Kenyan market. The Turkana discoveries will change the feasibility of pinning hopes on local consumption. Events, too, are undermining long-term visions week on week. South Sudan's dispute with Khartoum means it now wants to build a new pipeline through Kenya to Lamu, a project that could prove fatal to Ugandan plans to also export (its waxier, less attractive) crude east from Lake Albert.

And then there's DRC where, far from pursuing oil production as part of a rational plan, Kinshasa has twice handed Lake Albert exploration blocks to unknown companies, most recently to Caprikat and Foxwhelp, British Virgin Island registered vehicles widely rumoured to be connected to DRC mining magnate Dan Gertler. The lack of progress in DRC creates a security headache for Ugandan production and is one contributor to the increased militarisation of the Lake Albert area, from a planned new military base to the $700mn purchase of Russian fighter jets in 2011. As for the mooted 'joint production zone', the two sides remain unable to agree where the sovereign border runs.

Companies cash in

Regional competition over discoveries is also strengthening companies' hands. Operating in places the majors wouldn't touch created opportunities for small wildcats like Heritage to negotiate hard: the contacts for exploration and production signed since the late 1990s proved extremely favourable to businessmen rather than governments.

Now the oil majors are entering the market, they are using a different argument – that the wider regional choice means they must be incentivised to invest in one country over another. When China National Offshore Oil Corporation (Cnooc) struck a deal with Tullow to develop Uganda's fields, it warned Museveni that there wasn't time to wait for Parliamentary debates over the issue – pausing now could mean Uganda losing its winning lottery ticket to Kenya or Ethiopia.

These threats and gestures will do much to shape how oil and gas resources are exploited. The pressure is on to export rather than process domestically, and to lighten tax regimes to attract investment. The signs are that the cash, when it comes, will serve to encourage the worst, not the most progressive, trends in East African economic growth. Staple food inflation, youth unemployment and low agricultural productivity will remain unaffected or grow worse. Only fuel may become cheaper in the medium to long-term, but even that is far from a given, as experience in west Africa has shown.

Security conundrum

The majors have another interest not shared by the smaller explorers of 2007 – integration of operations across the region. Total is now in Uganda and has interests on the DRC side of Lake Albert too. Cnooc, in charge of Heritage's old block III in Uganda, is likely to aim for the same. One of the most intriguing developments over the next decade will be China's attitude to security in and around licence areas. A 'hands-off approach' will in reality translate into training, sales and support to national armies.

Optimists point to the potential for security to become backed by foreign companies working in partnership with governments. This was part of South African oil companies' pitches to DRC in 2007/8, including the offer of police training in Ituri. Realists see the prospect of escalating militarisation, including the use of Private Military Contractors, the wider use of 'safety zones' that push local communities from the land and opaque deals that entrench incumbent governments that promise to protect existing rights.

A lot has changed since the tragic events of 2007. The oil and gas rush is now a regional phenomenon. Amidst all the excitement of deal-making and discovery, it may prove to have political and economic effects that few are predicting today.

Taimour Lay is a journalist and used to investigate oil companies for Platform in East Africa.

The world’s economic attention is turning on East Africa as the region begins to explore its oil and gas resources.

The region has been charged by experts to be wary of the mistakes other African regions have made as regards their natural resources.