The incoming Energy and Petroleum Cabinet Secretary, Davis Chirchir, will need to make difficult decisions on the future of Turkana oil deposits.
When he occupied the same seat in 2013, upstream oil and gas investment environment was quite vibrant, with robust global oil demands and prices well above $100 per barrel.
Kenya was indeed excited with the prospects of being an oil exporter, with a potential for 120 million barrels per day production.
Markets collapsed
Local content and prospects for new jobs excited Kenyans. Then, oil markets collapsed first in 2015 and then in 2020, making global investors to shun new production. Today, Turkana oil remains in the ground with no ready investor.
Over the last five years, electric vehicle technologies have continued to rapidly evolve, with strong indications that use of petroleum on our roads will significantly diminish in the next 10 years.
With this ongoing energy transition, traditional oil investors are hesitant to invest in oil, including Turkana oil.
The short life of oil in the energy transition is likely to be the main pushback against any plans by Kenya’s petroleum authorities to pursue further investments in Turkana oil.
Climate lobbies
On the international stage, pressure from global climate lobbies is so strong that hardly any bank will touch Turkana oil. It is already happening with Uganda where the EU and European banks are unwilling to endorse funding for the Uganda/Tanzania crude oil pipeline.
The way I see it, Turkana oil is unlikely to be an immediate solution for Kenya’s ongoing energy inflation.
The oil is too far behind in the value chain to be of any commercial use soon. Should the Indian investors (ONGC Videsh and Indian Oil Corp) who recently expressed interest in Turkana oil come up with a quicker route to commercialisation of Turkana oil, this will be a bonus. Any new investments, whether pipeline or refinery will take no less than five years to implement.
Worst-case scenario
It is technically possible to develop a least-cost small refinery located in the vicinity of the Turkana oilfields. And as long as we continue to import refined products, this option should be seen as a plus to support balance of payments. The worst-case scenario is to burn crude oil in thermal power plants to replace imported fuel oil.
Our new Energy Cabinet Secretary may wish to focus more of his time on the power sector where weightier impacts are likely to be made to the economy. Turkana oil can wait.
