My tight to-do list that should guide Energy secretary

As we enter 2014, it helps to assess where we stand on the wider field of energy supply in this country. Energy remains a key economic driver, employment generator, and an enhancer of social life.

Much has happened in the oil and energy spheres in 2013, but many more opportunities await exploitation in 2014 and the years ahead.

More oil discoveries in Turkana in 2013 have added a new economic dimension that we are still trying to assimilate. The quantities of oil discovered so far can be said to have met commercial thresholds.

However, commerciality is a relative term which is defined by scale of economic expectations and level of infrastructure expenditure required to exploit the resource.

If one conservatively assumes that each of the five successful wells drilled so far can yield a flow of about 5,000 barrels per day (bpd), this gives a total of about 25,000 bpd of oil compared with 80,000 bpd of total oil consumption by Kenya.

And rigorous drilling continues in Turkana and elsewhere, with more successful hits anticipated in the Lokichar basin promising more barrels and improved commercial ranking.

Development of any infrastructure for crude oil exports or refining cannot be expected to be in place before 2018, which is when we can expect first dollars to flow into national and county exchequers.

However, earlier cash flows can be generated if other “quick-fix” interim uses (like power generation, fuel for heavy industries...) are found for crude oil already discovered.

It should, however, be noted that massive inflows of foreign direct investments are already happening for oil and gas exploration.

Many segments of the economy are already benefiting from these funds, meaning that the oil and gas sector is already contributing to our GDP. I presume that the planning economists will soon capture and publicise these sector statistics.

The one discovery of natural gas made in 2012 in the blocks offshore Kenya will need to be followed by more successful drilling before we can celebrate.

Expensive infrastructure would be required to exploit offshore gas, and for this reason flows will need to be large enough to establish commerciality.

However, it needs to be emphasised that absence of appropriate legal, fiscal and regulatory framework for commercialisation of natural gas is frustrating investors and slowing down commitments for offshore drilling.

Policy and regulatory guidelines have already been developed through the World Bank-appointed consultants. Drafting an upstream oil and gas law and regulations should, therefore, be an easy and quick job for early 2014 implementation.

Perhaps it is the newly found regional infrastructure co-operation between Kenya, Uganda and Rwanda that is the single most salient achievement of 2013.

Integrated regional petroleum infrastructure (crude/products pipelines, refineries) provide much needed supply and demand synergy while providing much needed economies of scale through reduced infrastructure unit costs.

Specifically, the agreed joint crude oil pipeline between Uganda and Kenya through Lamu makes it less onerous for Turkana oil development to hit commercial thresholds.

It is understood that the Ministry of Energy will soon undertake development of a Petroleum Master Plan for this country. This will be a positive starting point for 2014.

The plan shall define how Kenya will commercialise its newly found oil and gas resources. It will also define future petroleum infrastructure requirements and mostly guide investments which to date have been very uninformed and haphazard. It is probably this master plan that will recommend the final options for the Mombasa refinery.

The launch in 2013 of the “5000 MW of electricity generation in 40 Months” I think was very ingenious. Even if a 75 per cent implementation success is achieved, it will still have moved Kenya from “talk and perpetual planning” to providing sufficient power to drive socio-economic growth.

Sufficient power generation capacity has definitely to be in place before industrialists can commit investments. It is availability of reasonably priced power that will motivate and drive investments.

We are keenly watching to see how much power the ministry puts on the table in the coming few years.

The plan to install 600MW of imported coal power generation at Lamu was definitely an effective jolt and wake-up call to Kitui County politicians and civil society to get their act together and promptly facilitate exploitation of Kitui coal.

The economy cannot forever wait for Kitui coal when there is cheap coal available nearby in Mozambique. Major industrialisation projects (power, cement, steel) hinge on how soon we can get the Kitui coal into the market.

It was, however, encouraging to see investment commitments finally signed off at the end of 2013.

Yes, we have many opportunities glaring at us in the area of energy resources development, but we need to diligently manage potential “spoilers” which negatively impact on speed, cost and effectiveness of project implementation.

I assess insecurity, excessive and irrelevant politics, and misguided community activism as the main threats to resource development. The central and county governments should take upon themselves to guarantee security and community harmony.

Key spoilers

The other key spoilers which are squarely in the realm of government ministries are bureaucratic delays which increase implementation time and cost.

This is mostly in areas of legal, fiscal and regulatory facilitation and approvals. Ministries will need to understand and accept that “time” is a very critical and mostly free resource.

If in 2014 the Cabinet Secretary Davis Chirchir delivers a new upstream oil and gas law, sets up high level consultative mechanisms between ministry and oil and gas investors, finalises petroleum master plan, completes joint feasibility study for crude oil pipeline from Uganda through Turkana to Lamu, breaks ground for at least 1,500MW worth of power generation projects, brings Kitui coal on the ground, then he will have delivered a lot for Kenya in the year.

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