Ideas & Debate

Learning points for Kenya in BP’s 20-year energy outlook

WELL

A steam well drilled by Geothermal Development Company at Menengai exploration site in Nakuru: There is a growing emphasis towards renewable energy. PHOTO | FILE

Browsing through the 20-year BP Energy Outlook from 2015 to 2035, one sees a global energy mix under rapid transition, mainly towards low carbon energy with emphasis on renewable energy.

Kenya’s energy policies and strategies are generally well aligned towards low carbon power generation, which is where FDI (foreign direct investments) have maximum appetite. In respect of the transportation sector, Kenya needs to proactively improve efficiencies in use of imported oil.

The BP outlook correctly avoids speculative oil price prediction, but mentions that the market (supply/demand/price) continues to rebalance as low oil prices boost demand and dampen supplies.

However, the report warns the oil industry to re-engineer their business models to fit in a rapidly shifting energy mix.

Already a number of these companies are diversifying into renewable energy (wind, solar, electric vehicles) and natural gas power generation.

Fossil fuels

The report projects a global primary energy growth commensurate with world economic expansion, with the energy growth experiencing a pushback from increased emphasis on energy efficiencies, and carbon reduction policies.

Fossil fuels (oil, natural gas and coal) are expected to maintain overall dominance in the energy landscape, accounting for about 80 per cent of total primary energy by 2035.

Natural gas (and LNG), mainly prompted by the ongoing plentiful availability; positive low carbon credentials; and its flexibility to feed into petrochemicals, is expected to record the fastest growth among the fossil fuels.

Natural gas will continue to replace the high carbon coal, mainly in power and industrial sectors.

Oil demand growth will continue to be concentrated in the emerging economies of China, India and Middle East.

Specifically, the transportation fuels (petrol and diesel) will continue to maintain growth in developing countries, supported mainly by increased vehicle populations as growing household incomes (and low fuel prices) raise demand for vehicles.

However, the new technologies for vehicle fuel efficiency; penetration of the electric and natural gas propelled vehicles; and the establishment of efficient urban mass transit systems, shall all gradually reduce transport fuels growth....

In respect of oil supply, Opec, the petrolum exporters’ lobby, is expected to maintain a 40 per cent oil supply market share over the next 20 years, with most of the incremental supply growth coming from non-Opec sources, which include the non-conventional sources in North America.

The report indicates that by 2035, 45 per cent of the total global energy shall be in power generation, and this is the sector where most of the fuels shall be competing to enter.

Most of power generation growth shall be in electricity-deficit regions, which include India and Africa.

These areas shall attract massive global investments. And to align with global warming objectives these investments shall be targeting renewable energy (wind, solar, hydro, and geothermal) and natural gas/LNG, while avoiding higher carbon coal generation.

However, most investment attraction shall be in wind and solar which have experienced significant capital costs reduction with improved equipment design and technology. Further, it is expected that improved technologies for solar grid connectivity shall boost solar investments and uptake.

Let us examine what is happening in Kenya. When it comes to electricity, the country’s energy mix policies continue to be driven mainly by least-cost considerations, base-load power restrictions, hydro seasonality, and the limiting intermittency of wind/solar alternatives.

Greener mix
At the end of it, consumer expectations are reasonable tariffs, availability and quality of power supply.

The ongoing and planned power generation investments appear to target a strong geothermal base-load capacity while gradually adding on wind renewable sources. Natural gas (LNG) power generation is now de-prioritised until the country confirms local commercial discoveries. The plan also appears to focus on creating an early coal generation capacity (at Lamu) on imported coal, as we await local coal from Kitui.

As all the above happens there will be gradual relinquishment of imported oil thermal generation. The final generation mix will on average progressively become greener, and hopefully will turn out to be a cheaper mix -which is a key deliverable for the economy. There are massive ongoing efforts to scale up electricity distribution capacity to increase power uptake by the growing economy.

In respect of liquid oil, low prices and an upward shift in household incomes will increase demand for vehicles and oil. Energy efficiency campaigns in Kenya have concentrated more on industries and institutions and these efforts will now need to be extended to cover road transportation.

Travel prudence

Recently increased taxes on fuel and vehicles will encourage road travel prudence and dampen oil demand growth.

When rapid urban mass transportation is implemented significant oil use efficiencies shall be registered. However, the ongoing urban roads reticulation continues to reduce congestion and fuel wastage.

The BP Energy Outlook paints a picture of energy growth in growing economies which include Kenya. Global energy investments shall continue to give priority to low carbon areas.

To get value for our imported oil, Kenya needs to effectively address transport energy efficiencies.

Mr Wachira is director, Petroleum Focus Consultants. Email: [email protected]