New ownership good opportunity to reconfigure Turkana oil project


Tullow Oil tanks at its Turkana field. FILE PHOTO | NMG

The withdrawal of two Turkana Oil joint venture partners, Africa Oil and TotalEnergies, who each held 25 percent ownership of the project, was not a surprise as they had announced they were searching for strategic investors to buy their interests.

Even Tullow Oil, the 50 percent principal shareholder and joint venture operator, will likely follow suit. It was also announced that two Indian oil firms and a Chinese State oil firm are seeking to acquire interests in the commercialisation of Turkana oil which is estimated at 120,000 barrels per day (bpd).

The government is yet to announce the details of the Field Development Plan (FDP)submitted by Tullow.

Since oil was discovered in Turkana in 2012, global oil markets have changed significantly with global climate policies, and emergent renewable energy technologies progressively reducing future global oil demands, including here in Kenya.

Future oil demands uncertainties have introduced new investment risks and uncertainties for new oil projects, which include project funding, volatile oil prices, and expected project production lives.

These factors make it difficult to correctly model oil project economics. In fact, offshore marine fields are the preferred destination for investments due to lower project costs and shorter project times.

Our petroleum authorities should be well aware of the above factors when negotiating Turkana oil development deals.

Indian and Chinese investors are likely to have more flexibility in technical scoping and funding of the Turkana oil project than Western investors.

The Asian investors have captive demands for crude oil in their countries with their own refineries, which is a major plus. They are usually more pragmatic in the application of climate policies.

It appears that the FDP anchor investment model is crude oil production and export by pipeline to Lamu port.

New investors should be allowed flexibility to explore alternative feasible options for the project, including refining crude oil for local demands to save Kenya on oil import dollars.

The Indian and Chinese investors have the technical capacity to design a refinery to meet Kenya’s petroleum demands.

Further, there is no compelling reason Mombasa port cannot be the export location due to existing infrastructure.

Insecurity during pipeline project construction and operation was a major factor that discouraged Uganda from pumping its crude oil via the Lapsset corridor.

There were ideas of pumping crude oil via Eldoret and then using the KPC pipeline wayleave for a parallel crude oil pipeline to Mombasa.