Failure to strike gas opens door to new opportunities
Gas business: One fact has been established; that there exists a likelihood of natural gas in commercial quantities somewhere in the vicinity of Isiolo. Photo/FILE
Indications are that the Isiolo well, which is nearly five kilometres deep, will not yield commercial quantities of natural gas after all.
As much as Sh2 billion of risk capital has been sunk into the venture.
It is painful when an oil and gas explorer winds up an operation following failed drilling.
One fact has, however, been established; that there exists a likelihood of natural gas in commercial quantities somewhere in the vicinity of Isiolo.
The question is: who will be the next in line to invest in another well in the vicinity after China National Offshore Oil Corporation (CNOOC) and its partners have abandoned their unsuccessful venture?
The reality of oil exploration is that proof of the presence of hydrocarbons is via drilling to the hydrocarbon reservoir.
There is no short-cut to this critical manoeuvre.
Some drilling, like in Uganda, will be shallow and not very expensive while others, like Isiolo, will be deep and expensive.
Attention seems to be shifting to Turkana and Keiyo regions as well as the coast.
So hope is not lost as time might deliver blessings to Kenya, like has happened with our neighbours.
However, Kenya needs to focus on what we have — and that is the transit opportunity presented by our neighbours who have already discovered either oil or gas.
Uganda and Southern Sudan will need transit infrastructure if their oil has to access outside markets.
Kenya should focus on exploiting this opportunity.
There is need for pipelines, ports, jetties and refineries to handle oil from the neighbouring countries.
Already, Kenya plans to link the gas fields of Tanzania to Mombasa and put the energy to good use.
This is commendable because by the time the country discovers natural gas, it will have gained experience in the monetisation of the resource.
We need to appreciate that the risk capital provided by CNOOC, which partnered with smaller independent oil companies, made the Isiolo drilling possible.
CNOOC is a Chinese parastatal. The risk averse multinational oil companies will hardly venture into frontier areas such as Isiolo unless oil and gas has been found in large enough quantities, and political risks are minimal.
Political risks
Africa, which has for long been considered a frontier market with high political risks, has mainly attracted smaller independent companies.
The firms are doing a commendable job of opening up the continent’s oil and gas potential.
However, the Energy ministry needs to ascertain the financial capacity of the smaller independent firms before allocating them exploration blocks.
Otherwise it will turn out to be a game of hogging blocks for speculative purposes.
After successful drills in Uganda for instance, Tullow Oil has invited CNOOC and French multinational Total to provide the necessary capital and expertise for fast tracking the extraction of the newly found oil.
As Kenya intensifies efforts in oil and gas exploration, it is important to note the National Oil Corporation of Kenya’s (NOCK) intention to create a unit that will specifically handle upstream oil and gas exploration and development.
The idea is welcome as it will turn focus, and possibly channel resources, towards oil and gas exploration.
The move will separate the profit driven downstream marketing function of NOCK from the non-profit upstream oil and gas exploration service.
Upstream activities are regulated by the Petroleum Exploration and Production Act 1986, while downstream marketing activities are governed by the Energy Act 2006.
Allocated blocks
The Energy ministry should go a step further and create a new and separate company for oil and gas exploration and development.
Such a company will be allocated exploration blocks, be able to partner with others, and when oil or gas are discovered it can hold shares in the venture on behalf of Kenya.
Initially, the Finance ministry will have to allocate sufficient funds to the firm to enable it participate in exploration and development ventures.
The ministry will also need to expedite a review of upstream laws to ensure that they are in tandem with today’s realities and are able to attract capital, as well as provide a fair basis for Kenyans to share resource exploits.
The ministry should also develop skills of personnel in the upstream oil and gas sector needed by investors when they venture into our country.
Surplus skills can be made available to the wider region.
Local universities can be assisted to commence specialised upstream oil and gas courses that meet international standards, especially in areas of geophysics.
We should not be disappointed by the Isiolo debacle.
Recently, Information and Communication ministry permanent secretary Bitange Ndemo said that with future ICT development in Kenya the country does not need oil.
What Dr Ndemo meant was that Kenya should not lose sight of many other opportunities staring at the country.
Oil is just one of the many potential resources, and until we strike the black gold we need to focus on what we already have.
