Coal, oil and gas prospects call for new energy plan

The confirmed presence of oil and coal, and increasing prospects for finding natural gas on our continental shelf, will significantly change the shape of our national energy mix.

Read: Tullow finds more deposits in Ngamia-1 exploration well)

Locally produced fossil fuels will need to be factored in all energy and industrialisation planning to get maximum value for the economy.

The government will mostly aim at maximising foreign exchange income out of its new natural resources, while blending the new fuels into the national energy mix.

The country will also seek to reasonably contribute to carbon emissions reductions by choosing the greener of the energy options.

Other energy options currently open to Kenya are hydropower, geothermal, wind, solar, and biomass. Depending on agreements signed with oil producers, and the commercial quantities of oil eventually confirmed, most of the locally produced oil will be exported into international commodity markets.

Meeting local requirements of refined products out of locally produced crude oil is an arrangement that will need to be agreed between producers and the government, which will own shares in oil production.

Kenya already has a refinery in Mombasa that can process up to 70,000 barrels of crude oil per day and which is planned for an upgrade. A new refinery, like the one planned for Lamu, would take at least four years to put up. Harnessing the new oil into the refineries will require early planning.

The government of Uganda appears to have prevailed on oil investors to “accept” all initial oil to go into local refining, justified by what President Museveni has consistently called “value addition.’’ This is quite in order as long as the refining economics do not unduly disadvantage investors, and as long as construction of the refinery is not delayed.

Any attempt to subsidise costs of products introduces false economics and mostly leads to wastage and energy inefficiencies. Many oil producing countries are gradually withdrawing subsidies. It is in discovering natural gas that our energy mix will significantly shift because unlike crude oil it can be immediately and directly applied to power production.

Over the last decade, natural gas has become a fast growing global commodity that targets a cleaner and greener energy mix especially for power generation and heating. Gas has become a key input for balancing peak energy requirements for counties in Europe, USA and the Far East. Japan, which is seeking to reduce dependence on nuclear energy, is becoming a favourite destination for gas exports.

Finance minister Njeru Githae in his budget speech last week stated that there was need to manufacture fertiliser locally to support the agriculture sector. The two key ingredients for making fertilisers are natural gas and air (source of nitrogen).

Fertiliser making will be an ideal target industry should natural gas be discovered.

There is already a planned power project at the coast that will use imported gas. The project might coincide with natural gas discovery somewhere along our coast. This might propel natural gas to a preferred form of energy, perhaps even rivalling geothermal in terms of cost. Kenya might, for reasons of maximising foreign exchange, opt to export gas and maximise use of other local energy resources.

I have always seen coal not as an input for power generation, but a timely resource that will make Kitui County a new zone for heavy industrialisation.