Last week Kenya announced for sale 35 oil and gas exploration blocks mostly in the natural gas prone coastal Lamu Basin. This is an indication of revived upstream focus by Kenya after nearly seven years of exploration inactivity.

The world is going through major changes in energy use, environmental and technological innovations, all of which Kenya needs to consider as it renews its oil and gas ambitions.

Kenya discovered its first oil in Turkana County exactly ten years ago in March 2012, when global oil prices were persistently above $100 per barrel.

The oil was appraised commercially at 80-120,000 barrels per day. The discovery raised Kenya’s profile as an oil and gas exploration destination, with many foreign companies signing up onshore and offshore exploration blocks.

Then in 2014, excessive world oil production capacity prompted a price crash to as low as $25, forcing oil companies to rationalise upstream assets which included cutbacks in investments, shutdown of marginal assets, and mergers and acquisitions.

In Kenya, Turkana oil project became uneconomic while exploration elsewhere in Kenya wound up. The oil market crash prompted by 2020 Covid pandemic finally led to Turkana oil investors decision to sell their assets, which is the current status.

The post-pandemic economic recovery in 2021/22 and geopolitical crises around the world have stretched oil supplies, pushing prices back to over $100. The same applies to natural gas whose supplies have been lower than demands and prices high.

The energy transition from fossil fuels (coal, oil, gas ) to renewable energy is currently underway. Unlike oil demands which are facing growing competition from transport electrification, natural gas will retain a much longer demand life.

Natural gas, a very flexible lower carbon fuel, is positioned to bridge the transition of higher carbon coal and oil to renewable energy.

Going forward, therefore, natural gas will continue to attract more investor capital than oil which has a shorter demand life.

Renewed interest by investors in the Lamu Basin exploration block can therefore be expected since this area is prone to natural gas deposits, being an extension of Mozambican and Tanzanian offshore geology, which has significant natural gas resources.

However, past exploration experiences in Kenyan coastal blocks have not been encouraging with nearly every drilling turning out non-commercial quantities. This is a historical downside that Kenya will have to contend with.

I will therefore opt to focus more on the Turkana oil which is already in place, rather than the prospects of new oil and gas finds. With transport electrification dominance expected in the next 10 to 20 years, global and Kenya oil demands have a finite life.

Therefore, acceleration of Turkana oil project is a critical success driver to maximise value for the oil deposits. It is therefore important for the government to assume from investors the initiative to influence Turkana oil project timelines, to ensure early project implementation, for indeed it cannot remain a “forever” project.

As long as global oil demands last and exports have a market at reasonably high prices, Turkana oil project remains feasible and urgent. The first option for commercialisation remains crude oil exports by pipeline via Lamu.

However, to address the demand-side risks the project life should be condensed to below 20 years by maximising pumping rates to accelerate monetisation. Further, infrastructure security provision along Lapsset corridor remains a major enabler for this project.

As long as Kenya continues to import petroleum products, local refining to specifically meet Kenya oil requirements remains a sensible option.

This would have to be a very simple refinery located in Turkana or nearby making basic fuel products. Another option is to hook Turkana oil production to the Uganda oil export and refining infrastructure, subject of course to availability of spare capacity.

Finally, there is the option often pushed by climate lobbyists, which is to let Turkana oil forever rest underground in peace. This may easily become a default “do nothing” option should Kenya, for whatever reasons, fail to prioritise commercialisation of Turkana oil.

Yes, with fast-evolving energy technologies and climate policies, Kenya needs to make quick decisions on its oil and gas fortunes. There are socio-economic wins to be made when opportunities last.

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