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China firms in pole position as African oil industry counts down to 2016

With just two years left before drilling begins in the East African oil and gas fields, the world's major players gathered in Kenya for the third Oil and Gas Africa International Trade Exhibition, all keen to secure their own stake in the sector.

Photo: East African Oil: two years until the tap turns on.
East African Oil: two years until the tap turns on.

With a number of international companies jockeying for position with regard to exploiting the oil and gas resources of East Africa, it is the Chinese operators who are emerging in pole position. This was the clear impression that emerged at this year's third East Africa Oil and Gas Expo in Nairobi, an event that attracted dozens of leading firms in the oil exploration and ancillary sectors from across the world.

Although drilling has yet to begin, competition for a stake in the sector is already intense. Many are actively lobbying to ensure they are in the best position to take full commercial advantage when extraction begins in an anticipated two years' time. Chinese companies are thought to have stolen a march on the competition by having successfully established local partnerships, making them uniquely well-placed with regard to securing a role for themselves.

Overall, this year's event saw many of the companies that have already established a presence in Kenya joined by those businesses keen to assess the market prior to making their own entrance. Meeting local contacts was a priority for all attendees, with many also taking the opportunity to test the water with regard to their own strategies.

Explaining the importance of this year's expo, Lawrence Kuria Regional Manager of Expogroup, the organiser of the event, said: "The discovery of commercially-viable oil and gas deposits in Kenya, Uganda and Tanzania two years ago has attracted the leading oil companies to the region, with Kenya being the logical gateway to East Africa. This has seen this year's event prove hugely relevant to international investors."

In line with Kuria's assertion, this year's event proved "hugely relevant" to companies from 28 different countries, almost double the number that participated in 2013 (15). As well as Chinese companies – many of which were notable for openly competing against each other – the event also attracted representatives from India, Turkey, UAE, Britain, Germany, Egypt, and South Africa.

This strong showing, with many firms coming to the expo for the first time, was widely seen as underlining the prominent role Kenya now plays as the clear business hub for East Africa. Many are now also viewing it as the focal point for the whole sub-Saharan region.

Indeed, many participants indicated their intention to use Kenya as a base from which to target markets beyond East Africa. Particular interest was indicated toward South Sudan and Angola, both of which have huge oil and gas resources.

It was the Chinese firms, though, that appeared to be enjoying a clear advantage across all aspects of the energy sector. Many of them were actively seeking roles across a range of related areas, ranging from actual drilling to the supply of technical support and equipment.

Part of the success of the Chinese contingent was down to the cordial relations between the PRC and many governments in East Africa. Aside from their diplomatic advantages, though, the Chinese are also well-thought in terms of competitive pricing.

Among the major Chinese players represented at the expo was the China Petroleum Pipeline Material and Equipment Corporation, already a veteran of the East African scene. The corporation has already played a key role in the construction of the US$16 million Kenya Western Pipeline Enhancement Project as well as the $89 million Sudan Pipeline Project (phase1-111).

Photos: The Kenyatta International Conference Centre, venue for the 2014 expo.
The Kenyatta International Conference Centre, venue for the 2014 expo.

Addressing its current involvement in the sector, William Meng He, the company's Marketing Manager, said: "Last year we won a tender from the Kenya Electricity Generating Corporation (KenGen), the national electricity generator. We are also working with the Kenya Power and Lighting Corporation – the country's sole electricity distributor." The company is also believed to be in negotiations with a number of local companies in the private sector with regard to future co-operation.

The company has a long history as an international player, having successfully worked with partners in more than 20 countries, including the US, Britain, France, Germany and Italy. East Africa is one of its current key focuses and it has already established a Nairobi office as its African headquarters.

One of its competitors in East Africa is Kerui Group, another Chinese company, which also trades in heavy-duty oil equipment. The other major Chinese player at this year's expo was the Greatwall Drilling Company, a specialist in the hard water drilling and geothermal sectors.

Greatwall has high expectation of playing a major role in Kenya, with the government believed to be keen on developing the country's geothermal energy resources. Acknowledging its commitment to the region, Zhang Jindong, Greatwall's representative in Kenya, said: "We have long had operations in South Sudan and are now working to expand our presence across Africa."

Greatwall, as with the other Chinese companies in the sector, has been at pains to establish local partnerships and appoint regional agents. According to the companies involved, securing local partnerships have proved to provide a clear advantage in tackling any emerging difficulties, a particular problem given the sensitive nature of the energy sector.

Moving more into the industrial accessories sector and the Wenzhou-based Zhejiang Teer Valve Co Ltd was showcasing its range of refinery-ready valves, said to be especially suitable for oil pipelines, as well as for a number of other industrial applications. Emphasising their ubiquity, Joyce Yu, the company's Marketing Director, said: "We are already selling to East Africa Breweries, the largest beer manufacturer in Eastern Africa. We are now also hoping to working with the region's oil and gas industry."

It wasn't all just about Chinese businesses, however. One Italian valve maker – Viar Valvole – also hoped to use the expo as a springboard into the region. The company has already traded extensively in Southern and Northern Africa and has considerable experience in the oil and gas sector. Addressing his company's hopes for the region, Umberto Stranich, Viar Valvole's Operations Director, said: "I see the Kenyan oil and gas industry growing hugely over the next five years. We are keen to find a foothold before the industry begins full operation."

Another player with similar hopes was Isisan, a Turkey-based supplier of oil and gas tanks. With its current users including BP and Shell, it is optimistic about making inroads into East Africa. Oncar Kuzucu, the company's representative in the region, said: "This is our first visit here and we are hoping to secure a number of deals in the near future. This is certainly going to be a big market and we want to be in it from the beginning."

Also making its debut in the region was Pentol, a German company specialising in emission control products. At the expo, it was looking to promote its environmentally-friendly range of fuel additives and emission reduction equipment. Outlining its offer, Matthew Hedges, a Director of the company, said: "Protecting the environment will become increasingly important as East Africa develops this sector. We hope to be one of the key players when it comes to ensuring that the country is protected from the harmful effects of the oil business."

A sizeable Indian contingent at the event included Unity Controls, a supplier of power stabilisers for industrial use. George Omweri, the company's East African Agent, believes the company's power stabilisers are particularly suited to the local market, given the need for both cost savings and the problem with supply fluctuations. He said: "Our system offers saving on up to 40% of electrical consumption. That is a major cost saving."

Another Indian delegation was General Mechanical Works PVT Ltd, the manufacturer of specialist machinery for cleaning up water sources around power stations. According to Arvinder Singh Panesar, a Director of the company, India and Kenya face similar problems, with water-borne vegetable matter, such as water hyacinths and other weeds, representing a possible risk for power generation machinery. He said: "Our equipment blocks weeds and other foreign objects from penetrating into the generation equipment at power plants and thus ensures maximum efficiency."

As with many of the other exhibitors at the event, Panesar said his company planned to return to the event in 2015. With the deadline before pumping begins only 12 months away at that point, it would seem highly likely that size of the next expo may well be double – or more – that of its 2014 incarnation.

Photo: Attendees double for 2014 event.
Attendees double for 2014 event.

The 3rd Oil and Gas Africa International Trade Exhibition was held at the KICC in Nairobi from the 27th to 29th April 2014.

John Kariuki, Special Correspondent, Nairobi

Content provided by Picture: HKTDC Research
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