The National Energy Policy 2018 is by any definition a recent document. However, it is necessary to continuously review various energy policies and strategies to ensure alignment with fast evolving global energy trends.
After COP26 climate forum last year, there is a definite shift in how energy investments are decided and committed. Moreover, due to reduced oil production investments to align with energy transition, oil prices are firmly on the rise, and this calls for policy reviews to protect key socio-economic metrics.
Kenya needs flexible and progressive energy policies and strategies to align with changing global and local energy supply chains.
Specifically, how to respond to impacts of high oil prices has become a major headache for many governments around the world, including Kenya.
High oil prices which are above a new high base of US$100 per barrel are pushing up inflation, while destabilising balance of payments and values of local currencies. Going forward oil prices will be high, and this is a fact that should be included in all national economic and monetary plans.
The unstructured way Kenya responded to recent oil price increases points to an urgent need to open up the Energy Policy for review to ensure energy supply sustainability -uninterrupted availability and affordability.
Oil prices, directly and indirectly, impact performance of nearly every socio-economic sector in this country. Oil supply security and prices should therefore be viewed as critical economic factors. Oil should not be viewed as a fertile evergreen opportunity for taxation.
A new policy was introduced two years ago to subsidise oil prices, but this was implemented in a rush and without sound justification nor effective instruments to implement it.
In a new era of high oil prices, it is essential to review merits and cost-benefits of implementing a policy for strategic stocks. Strategic stocks can even out impacts of global commodity price fluctuations while ensuring security of oil supply for Kenya, but such policy needs to be cost-effective.
The reason global oil prices continue to rise is because oil and gas investors have reduced commitments on new oil production investments, so as to align with a new era of energy transition away from fossil fuels.
And this is happening at a time when the world has not sufficiently transitioned from fossil fuels demands to greener alternatives. Oil supply and demand are therefore always operating in a very thin margin of variance, making prices very sensitive to changes in global supply and demand.
Kenya will therefore need to produce a clear strategy and timetable to transition from oil to renewable energy. This will attract increased investments in electrification of transportation while oil related investments will correspondingly decline.
These are clear policies and strategies that investors and green funds are waiting for. It will be important to involve fiscal authorities early enough because there will be tax revenue implications when the country transitions from oil to electricity.
A revised National Energy Policy should also unambiguously explain Kenya’s intentions and strategies on the upstream oil and gas sector, especially the established but unexploited oil deposits in Turkana. This subject should not be left to inconclusive debates with investors and climate groups.
Investors are likely to find it difficult to get funds to commercialise the oil deposits for exports. There are however other options for local commercialisation of these deposits. On their part, climate groups are likely to argue for oil deposits remaining buried where nature put them
My argument has consistently been that, for as long as Kenya will continue to import oil (albeit in decreasing amounts), Turkana oil resources have relevance to Kenya’s current and future energy use and costs.
The country can accommodate Turkana oil and still be far ahead in its fair contribution to climate change abatement due to its already high share of renewable electricity.
In summary, Kenya needs to reopen discussions on the National Energy Policy to accommodate ongoing changes in global energy supply chains. Oil prices are expected to remain high, while energy transition will gather momentum forcing us to gradually let go of oil.
Energy investors and green funds are more inclined to place their cash in Kenya if a clearly supported national energy policy exists.
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