The single most significant game changer is the US shale oil and gas developments.
Over the past four years, a number of significant political, economic and technological changes have structurally changed global energy markets. Some of these changes will directly or indirectly impact our region, including Kenya.
The single most significant game changer is the US shale oil and gas developments which by 2014 had created a global oil oversupply causing a big drop in prices which have not fully recovered.
The US shale has become the key global swing source of oil, and very much influences global oil prices. The “swing” status was previously held by Saudi Arabia which today, and together with the OPEC and Russia, have assumed a reactive role.
The shale phenomenon has made USA a net exporter of oil and LNG (liquid natural gas). It is now an exporter of light crude oils, which will bite into traditional oil producers export markets. This will also potentially dilute future markets for oil exports from East Africa.
US President Trump is a bullish champion of a positive US balance of trade, and he will most likely champion increased exports of US oil and gas.
Reaction to the shale “threat” has brought Saudi Arabia, Russia and Iran into a very unlikely alliance of convenience as they seek to stem the slide of their oil resources value, and erosion of global oil export market shares.
The 2014 Ukrainian crisis and subsequent economic sanctions against Russia is another geopolitical event that continues to transform global natural gas markets.
Since 2014, the EU has been developing alternative natural gas sources to reduce dependence on Russia, with increased LNG imports from USA and elsewhere.
Developments of new natural gas fields in Eastern Mediterranean have also been stepped up to mainly supply the EU energy demands.
Additionally, the EU is stepping up development of renewable energy (solar, wind, nuclear) to reduce dependence on Russian natural gas while focusing on Paris Climate Accord carbon obligations. Scaling up of renewable energy development by EU has helped enhance renewable energy technologies and economics.
On its part, Russia is fast developing alternative natural gas markets away from the EU with gas pipelines to serve new Chinese and Far East markets. The expansion of Russian gas markets into Asia will potentially upset business models for the new East African (Mozambique, Tanzania) natural gas investments which assumed LNG exports to Asia.
The 2015 Climate Accord continues to increase global renewable energy uptake, gradually reducing demands for fossil fuels. Conversion to electric vehicles (EVs) is gaining momentum as many countries in Europe and China commit definite timelines for changeover to EVs, and as electric battery technologies continue to improve.
In sync with the Paris Accord, major oil companies are directionally allocating more capital to lower carbon natural gas production, with reduced emphasis on oil production. These points to a future “oil” industry with investment choices skewed towards natural gas which may include power generation participation.
Finally we have the ongoing re-emergence of “cold war’ between USA/EU and Russia, and this may heighten global political tensions. If this escalates to oil producing regions, it will potentially increase oil price speculation and volatility which is not good for energy and economic planning.
Iran which is a major oil producer and an ally of Russia is likely to be sucked into the ongoing global conflicts. Saudi Arabia the other major oil producer is a strong cheer leader of the USA/EU political axis.
China, now the “mature and sober guy” in the emergent cold war geopolitics, continues to maintain a significant influence on global energy markets especially demands.
The world is closely watching the impacts of the recently launched Chinese politico-economic roadmap, which is likely to influence the global economy, and also energy.
Specifically for Kenya, as a net energy importer, we are keen on security of energy supply, and reduced energy price volatility to permit a stable and predictable economic path. As a prospective exporter of oil, Kenya needs to closely monitor evolving changes in global export markets, to avoid surprises when we are ready for first oil exports.
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