Ideas & Debate

Why Turkana oil project ought to be given priority

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Early oil production facility in Lokichar. FILE PHOTO | NMG

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Summary

  • Scaled-up production will significantly reduce unit capital and operating costs, quite critical in reducing production break-even unit costs.
  • There is work to be done to publicise and keep the Turkana oil deposits development on the radar.

There was a time when Kenya was upbeat about the socio-economic opportunities from Turkana oil discoveries. This is until one occurrence after another pushed the oil project further into the future. Global oil markets and prices which over the past seven years had discouraged investments are slowly regaining stability.

How to regain focus, initiative, and control of timelines for commercialisation of the Turkana Oil project is an important subject for Kenya. Our neighbour Uganda has remained on course to complete its project and it is succeeding.

The Turkana oil project joint venture (JV) has presented what I consider to be a practical and realistic field development plan. However, timelines for investment commitment by the JV should be made a critical condition, and not “when a strategic investor will be found.”

I am hoping that a firm deadline for bringing in such an investor will be agreed with the JV, otherwise, it will remain open-ended, which is not good for Kenya.

Demonstrated capacity to raise sufficient capital for the project within a reasonable time should be an overriding criterion for accepting the strategic investor.

I am not in any way underestimating the challenges of locating such an investor, for indeed quality investors are unwilling to put their dollars in fossil fuels projects. Climate activism has made it difficult to commit funding for new oil production fields.

Nor can we underestimate the evolving “oil demands risks” inherent in new oil development projects, knowing that global oil demands will gradually undergo attrition as energy transition from oil to renewable energy takes its toll on oil demands. Shorter oil production project spans may be desirable.

Going by the project sizing figures announced by Tullow Oil, the company appears to have scaled up the rate of production to 120,000 barrels per day from the previous plans of 70,000bpd, and for shorter project life.

Extracting an estimated 585 million barrels at this rate will take slightly less than 15 years, which is a safer hedge compared with the usual project life of between 20 and 25 years. Extracting as much oil in the shortest time possible reduces the risk of being caught up by peak oil demands.

Scaled-up production will also significantly reduce unit capital and operating costs, quite critical in reducing production break-even unit costs, and also in improving export netbacks at a time when oil markets are quite volatile. The current global oil prices in the range of $75-85 are a further incentive to commercialise when the markets are strong.

The petroleum authorities should in the meantime firm up land acquisition plans with various stakeholders but hold payments until investment commitments for the project are nearly achieved. The supply of water from a neighbouring county (West Pokot) to the oilfields was another outstanding issue that needed to be aligned.

Across the border in Uganda, one cannot fail to notice the ongoing oil commercialisation momentum, with crude oil production and pipeline investment commitments already lined up and plans for construction procurement already commenced. My assessment is that Uganda will easily meet its early 2025 first oil export date.

The Tanzanian government, which is hosting the Uganda crude oil pipeline, is upbeat about their investment participation with prospects for plenty of local content.

My assessment of the key success factors for Uganda oil developments is focused on the highest possible political level; functioning legal/institutional frameworks, and investors with significant financial/technical capacity. Uganda has been at it for 15 years since oil discovery in 2006.

Back to Kenya. It is important that the extractive sectors (oil, gas, and minerals ) are sufficiently featured as critical parts of our national economic development plans.

There are new jobs and skills and dollar revenues for the balance of payments. Extractives should be part of economic manifestos for parties aspiring to form the next government.

In the meantime, there is work to be done to publicise and keep the Turkana oil deposits development on the radar, and to support the project JV secure strong investment partners, while the government facilitates project supporting services and land.