The events of the last few weeks wreaked devastating havoc, to say the least on the consumers and distributors of petroleum products and the economy at large.
The oil crisis that resulted in the deportation of a chief executive of a leading oil marketing company, left many contemplating the energy security of Kenya as well as underscoring the crucial role oil plays as a key driver of the country’s sustainable economic growth.
There were many theories to the crisis, ranging from economic, social to political paradigms emanating from the populace, especially because Kenya is a few months to the General Election, which I may not want to delve into, but most importantly to focus on how we can build an agile, resilient supply chain to avert such crisis in the future.
The oil supply chain has three functional segments namely the upstream, midstream and downstream.
Upstream supply chains are companies that identify oil and natural gas deposits and extract them underground, midstream supply chains involve storage, processing and transportation of petroleum products while downstream supply chains, which start at the refinery, involve production and the logistics management of delivering the crude oil derivatives to customers around the globe.
Most disruptions are prominent within the downstream and at some point the midstream segments. According to Deloitte, among the most glaring causes of disruptions in the oil and natural gas supply chains in the world is reliance on key oil-producing nations including the US, Saudi Arabia, Russia, Canada and China.
Russia, for instance, has one of the largest reserves of oil and is the largest exporter of natural gas globally. It has the second-largest coal reserves, and the sixth-largest oil reserves. The country is one of the largest producers of oil.
Russia produces an average of 10.83 million barrels (1,722,000 cubic metres) per day. Therefore, the Russia-Ukrainian war would naturally interrupt the oil supply chain, causing stockouts and price fluctuations.
The American Petroleum Institute posits that oil prices and shortages have soared globally after Russia invaded Ukraine, with the price of Brent crude oil — the global benchmark for prices — hitting a near 14-year high of $139 per barrel at one point.
Key oil marketers operating in Kenya say the prices for petrol and diesel would have increased by up to Sh40 a litre to Sh174.72 and Sh155.60, respectively, save for the government subsidy programme. Currently, pump prices in Uganda, Rwanda, South Sudan, Tanzania and the Democratic Republic of Congo are higher than in Kenya.
Other issues contributing to disruptions in the energy sector include the rigid logistic network in the oil industry, long transportation lead times, inadequate regulations, limitations of modes of transportation and energy planning and poor management of the sector.
To mitigate the effects of such disruptions, Kenya must build enough oil reserves to cater for the consumption capacity, and reduce lead-time and transport costs from the shipping point to the final customers.
This can be done by opening new production or distribution hubs closer to customers, making oil deliveries more reliable.
Also, make the oil supply chain agile to reduce costs and increase the flexibility of the oil logistics network, align the oil production cycle with consumer demands, build stability in the production, distribution, replenishment through adequate regulations and improve oil supply chain visibility.
In the US, the natural gas and oil supply chain is inherently resilient as a result of its design, which incorporates rapid response capabilities with automated response triggers.
The resiliency of the system design inhibits traditional choke points in the natural gas and oil supply chain.
The US has nearly 500 natural gas processing plants, more than 300,000 miles of natural gas pipeline, over 30 major market hubs and 400 storage facilities.
The natural gas industry alone, including all end-uses, infrastructure and production, provides more than $550 billion in value to the US economy (about three percent of gross domestic product and more than four million jobs.
About 20 percent of natural gas consumed each winter comes from underground storage.
The underground storage ensures natural gas flows to consumers in the event of temporary disruptions in production and helps interstate pipeline companies balance system supply on their long-haul transmission lines.
The flexibility and resiliency provided by the storage facility are critical to maintaining reliable and responsive natural gas delivery.
Agility in the petroleum industry is essential and ensures more efficient and continuous supplies of crude oil, the reduction of lead times, and the lowering of production and distribution costs.
The State must build resiliency into our oil supply chain to prevent such incidents witnessed a few weeks ago and ensure that, if events such occur, they produce the least possible impact.
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