Last week, two Indian oil and gas investors, ONGC Videsh and Indian Oil Corp announced interest in procuring Tullow’s 50 percent interest in the Turkana oil project. The project has a potential for 120,000 barrels per day and includes an export pipeline via Lamu Port.
Turkana oil was mothballed in 2020 when global oil markets collapsed, with Tullow, the project operator, announcing plans to sell its interest to a strategic investor.
I have previously said that any rescue for Turkana oil will come from East ( China or India), considering the pressure faced by Western investors from climate activists and financiers who have mostly said no to funding new oil production projects.
Oil companies from China and India are usually backed by their governments, whose energy policies significantly prioritise energy security ahead of climate change.
Since last year oil prices have hit $100, directionally improving crude oil production break-even economics. However, it is no longer the project economics that conclude oil production deals.
TotalEnergies, the lead investor in Uganda/Tanzania crude oil pipeline has faced difficulties confirming definitive funding for the project, mainly due climate lobbyists' pressure on capital providers. Indian and Chinese firms are likely to raise capital with less hostility from climate activists.
In general, new oil production faces unique structural risks due to uncertainties that shroud the energy transition path. It will take much longer than anticipated long to replace oil demands with renewables, with oil supply disruptions and associated high costs as unintended consequences.
The Turkana oil project needs policy and execution flexibility. This may include the possibility of a simple local refining for local oil demands. Companies from the East are more likely to entertain such flexibility in project modelling.
Going forward, Kenya needs significant inflows of foreign direct investments, and the Turkana oil project will do just that. Whether exports or local refining, Turkana will generate dollars, cushion a limping shilling and improve balance of payments, while supporting foreign debt repayment.
Climate change naysayers will for sure argue otherwise. However, Kenya can amply demonstrate its exemplary green power generation performance, a truly fair contribution to global climate efforts. This justifies Turkana oil as an acceptable climate risk for Kenya.
The new government will need to revive an extractive sector (oil, gas, and minerals) that has the potential to deliver jobs and micro businesses, while significantly boosting Kenya’s balance of payments.
As for Turkana oil, we can balance its carbon impacts with the good green programmes and projects that are taking place. In the meantime, let us welcome prospective Turkana oil investors.
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