Increased oil uptake reflects vibrant growth

The latest data from Petroleum Institute of East Africa (PIEA) show that in 2016 total petroleum consumption in Kenya grew by 7.0 per cent to a total of 6.3 million cubic metres that translates to 108,000 barrels per day (bpd).

For comparison, this consumption just about equals 109,000 bpd of recoverable oil reserves (1 billion barrels over 25 years) in Turkana.

The massive oil price drop in mid 2014 from over US$100 per barrel to about US$55 currently has continued to ease energy costs to the economy, thus encouraging increased consumption.

There is a strong correlation between energy demand and economic growth, with the latter slightly lagging to account for energy use inefficiencies. In 2016, Kenya’s economy grew by 5.9 per cent.

Demand growth among various products varied widely. Gasoline (petrol) consumption grew by 11.0 per cent, diesel by 7.0 per cent, aviation jet fuel by 5.0 per cent, while LPG (cooking gas) increased by 17.0 per cent. Each one of these growth figures carries a unique socio-economic narrative which I will endeavor to analyze.

Starting with gasoline, one needs to understand the emergent lifestyles of the middle and high income groups to appreciate the high jump in petrol consumption.

Car ownership continues to increase mostly encouraged by easy access to secured credit. Not only have the number of cars increased but they have also grown in engine size. The car appears to have become a priority status symbol for the younger upcoming Kenyans.

Secondly, there is an apparent increase in use of taxis by urban travellers, prompted by the convenience and lower costs brought about by Uber systems.

More cars are being imported for the growing taxi sector, and this is boosting gasoline sales.

Thirdly, on average there is an apparent increase in mileage driven per car mostly prompted by relatively low gasoline prices and higher disposable incomes.

Over the weekend, many more cars are seen driving to the counties and to the numerous malls now dotting the city.

The negative impact of increased cars is a massive strain on our road capacity, with serious traffic gridlocks which result in even more wasteful gasoline consumption.

In the long run, the high growth rates in car population and gasoline consumption may not be sustainable.

At 7.0 per cent annual increase, diesel is the product that best reflects national economic growth. Diesel is the true “economy driver” which is gainfully used in productive and service economic sectors.

These include transportation of goods and passengers, construction of housing and infrastructure, agriculture and mining. Diesel directly or indirectly adds value to the economy.

Should SGR live up to its business projections and replace 50 per cent of road haulage between Mombasa and upcountry , diesel consumption shall shrink given the energy efficiencies and economies of scale associated with rail transportation.

When the SGR goes electric, diesel shall be replaced with electricity which will be incrementally produced from renewable sources, and this will be a “green” energy progression.

The 5.0 per cent jump in jet fuel consumption in 2016 is a reflection of increased tourism and international business travel.

This is a good story and an appropriate measure of confidence the outside world has in Kenya. Continued security improvement and resuscitation of Kenya Airways, should see higher aviation fuel sales.

The 17 per cent LPG growth may be an incorrect statistic. The 2016 consumption of 174,000 tonnes is probably understated, with sales above 200,000 tonnes being nearer reality.

The ongoing rapid urbanisation all over Kenya and the high growth of the middle class population may be driving higher LPG consumption than is reported.

We need to understand the recent “not so good” LPG history. A fraction of LPG business (imports and filling) which hitherto operated underground is gradually coming above ground.

The high LPG growth rate reported is partly explained by the previously unreported LPG sales now emerging from the black market. This is also a reflection of improved market regulatory enforcement by the Energy Regulatory Commission (ERC).

In summary, the Kenya economic growth has been assisted by lower oil prices, but these may not last for long.

We need to use our oil imports efficiently to add more value to the economy.