Putting off oil export wise but more should be done

An oil rig owned byTullow Oil at Cheptuket in Elgeyo-Marakwet. PHOTO | JARED NYATAYA 

By GEORGE WACHIRA

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Summary

• Considering that we are still at the exploration and appraisal stage, it is a long journey to the first oil export via Lamu.
• We need to fast-track the process to commercialise the oil finds.
• And this starts by honestly realising and accepting that today upstream investments are scarce and very selective.

Energy and Petroleum secretary Charles Keter’s suspension of the early oil export project was wise and timely. The project was meant to export some 2,000 barrels of crude oil per day (bpd) by road from Turkana via Mombasa.

It is never too late to correct a decision that was evidently based on a weak technical and commercial model. Hopefully, the move will lead to focus on the ultimate prize of exporting crude oil by pipeline from Lokichar to Lamu.

Considering that we are still at the exploration and appraisal stage, it is a long journey to the first oil export via Lamu. We need to fast-track the process to commercialise the oil finds.

And this starts by honestly realising and accepting that today upstream investments are scarce and very selective.

The country, the government and stakeholder communities will need to make it easy for the scarce capital to “decide” to invest in our oil.

If we do not adopt this open and progressive approach and attitude, our oil will remain in the ground for many years to come, and this will be a missed socio-economic opportunity for all.

A key upstream investment driver is the oil export price at the gates of refineries around the world.

And prices, currently below $50 per barrel, have stubbornly refused to strengthen and Kenya has no control of this extraneous factor.

Further, the world is awash with oil thus giving refineries a wider choice (quality and delivered price) on crude oils to refine. Although the Turkana oil is light and of low sulphur, it is waxy and carries high supply chain handling costs. It is a fact that investors in the oil fields cannot be counted as highly capitalised. They are probably in tier-three, down the capitalisation ladder. They fund most of their operations with debt which has become cautious and very selective with upstream ventures.

Kenya is unfortunately still categorised as a frontier investment arena, with a number of technical and political risks.

Failed joint venture

Yes, we need to make it easy for investors to prioritise their investment dollars in Kenya. First, we need to expedite the relevant laws, regulations and creation of implementing institutions.
Without these instruments, no investor will readily commit final investment decisions to commercialise our oil and gas.

Secondly, no investor will make final investment decisions unless and until the export pipeline is assured and the applicable tariffs are economical enough to make the entire supply chain profitable and sustainable under the current and projected market conditions.

Thirdly, still smarting from the rebuff by the Ugandans on the failed Lamu pipeline joint venture, we should be working on making the pipeline project attractive to investors. The Ugandans rejected the Lamu route because of perceived insecurity, absence of access infrastructure, high tariff, and absence of fiscal waivers. We should by now be proactively addressing these concerns.

Last month, while in Ghana, I observed the socio-economic impacts from the new offshore oil finds.

Oil was discovered in 2008 and by 2010 the country was already exporting 80,000 bpd.

Ghana had put in place a facilitative legal and institutional framework in a record time.

The associated gas from the oilfields is feeding power plants, while LPG supplies are destined to domestic users.

With a population of 27 million, Ghana is now consuming double Kenya’s LPG.

Ghana’s oilfield location in the ocean means there is no need for an export pipeline.

Production, storage and export loading are all done via local multi-purpose floating FPSO units.

Above all, offshore operations are essentially immune from community politics and conflicts.

Like in Turkana, Tullow Oil are the operators in Ghana. However, Tullow is definitely prioritising their limited resources towards Ghana where rewards are immediate and hurdles are minimal. Finally, I commend Mr Keter for taking a firm decision on the oil-by-road export project.