World Bank dims Turkana oil hopes


Mr Andrew Kamau, Petroleum principal secretary. FILE PHOTO | NMG

The World Bank’s announcement that it will cease financing oil and gas explorations after 2019 has signalled a looming dampening of enthusiasm for what has been one of the world’s most valuable minerals and cast dark clouds over Kenya’s budding oil industry.

The World Bank, which has about Sh515 billion invested in oil and gas across the world, said on Tuesday it will be moving its resources to cleaner sources of fuel as part of its contribution to the global fight against climate change.

READ: World Bank to stop financing oil, gas projects from 2019

Kenya has in recent years increasingly banked on its oil finds in Turkana to support its tightening fiscal space and boost economic growth in the medium and long term.

But the ongoing diminishing support for fossil fuels means the price of crude is likely to remain flat or even drop in near and mid-term as more clean alternatives such as electric engines become less costly.

The announcement by the bank, which has significant interests in Kenya’s oil prospecting sector, does not bode well for the country’s anticipated entry into the club of oil producing nations beginning next year.

Analysts said they do not expect an immediate reaction to the announcement even as they acknowledged that it takes the shine from oil in the long term.

“This (World Bank decision) will not have an impact on markets and oil prices in the short-term but it will in the longer term, in the mid 2030s, as oil demand drops,” George Wachira, a director at Petroleum Focus Consultants.

Technical support

Locally, the World Bank is offering technical support to the Kenyan government, through the Kenya Petroleum Technical Assistance Project, to prime all stakeholders for commercial oil production and sale.

The six-year programme is scheduled to run until February 2021 and involves the World Bank managing a Sh5.2 billion fund set up by investors from Germany, Norway and Britain.

The World Bank’s private lending arm, International Finance Corporation, is however directly involved in Kenya’s oil fields, having a 6.83 per cent stake in Africa Oil, the Canadian exploration firm with interests in northern Kenya oil blocks.

READ: IFC gives Nairobi energy firm Sh2bn for regional projects

Kenyan authorities reacted mildly to the announcement, but could not hide the feeling that it had come at the wrong time.

“I do not know why the World Bank has made this decision, but it is their right,” Andrew Kamau, the Petroleum principal secretary, told the Business Daily in a telephone interview.

“As far as the technical assistance programme is concerned, the World Bank is contract-bound to see it through for the next three years. This move will not negatively impact our plans.”

READ: Kenyans to buy Turkana oil blocks in Sh103bn IPO

Global warming

The Paris Accord, which became effective in November 2016, saw 196 countries commit to reducing their carbon output and halt global warming at below two degrees Celsius by the end of the century.

This shift towards clean fuels has seen firms like General Electric announce staff cuts in anticipation of reduced demand for gas and oil.

Countries like the United Kingdom and France plan to ban petrol and diesel vehicles by 2040.

This anticipated drop in demand is expected to leave oil-producing countries (which will by then include Kenya) with a growing stockpile of product and a thinning customer base, hence dampening prices.

Kenya has an estimated 750 million barrels of recoverable reserves in onshore fields and is working towards constructing a pipeline to transport its waxy crude to export points.

Oil glut

A global oil glut has over the past three years seen major producers scale back on production in order to shore up prices.

A barrel of Brent crude was Wednesday trading at 63.92 a barrel.

Mr Kamau has in the past stated that Kenya needs the oil price to be no lower than $50 -$55 a barrel in order for the country to exploit its oil reserves profitably.

READ: WACHIRA: How Kenya can maximise value from low oil prices