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Kenya’s oil dream: it’s now or never

FINANCIAL STANDARD
By Macharia Kamau | November 9th 2021
By Macharia Kamau | November 9th 2021
FINANCIAL STANDARD

Oil pumps and rig at sunset. [Getty Images]

Kenya’s oil project has experienced major delays, denying the country the chance of joining the league of oil producers as well as the benefits that would come with it.

And while Tullow Oil’s project in Lokichar, Turkana County is the best known, other projects identified as key in actualising the country’s oil dream have not fared any better.

The delays have been costly for many companies – especially fledgling local oil and gas firms – that had made huge investments to reap from the expected oil boom.

Prolonged periods of inactivity at Lokichar and across other oil blocks have meant they cannot monetise their investments or even build capacity in the sector.

It also means that Kenya still retains the tag of an emerging oil producer as opposed to being a producer, which makes it unable to attract major investors in the sector.

A decade after Kenya discovered oil in Lokichar, a lot has changed, with the allure of fossil fuels fading as the green energy revolution takes hold.

Financiers are increasingly moving away from projects such as oil and coal and are now pumping billions of dollars into wind and solar energy as well as electric cars and associated parts such as batteries.

Perhaps in a bid to restore some hope in Kenya’s upstream sector, the government recently revoked licences of a number of oil companies that failed to meet their contractual obligations.

By kicking out the non-performers, the government may be trying to rekindle hope for the country’s oil dream that has in the recent past been slipping away.

Senior executives from Tullow Oil and its partners – Africa Oil and TotalEnergies – toured Kenya last month in a bid to restore hope in Project Oil Kenya.

Tullow said the executives had come to appraise key government stakeholders on its newly developed plan to develop the Lokichar project.

Sources, however, said the power team was in the country to assure the government of their commitment to seeing the project through following the cancellation of the contracts of non-performing firms.

But the visit did not generate any good news as far as the project’s timeline is concerned.

Tullow said the project would only take off after the joint venture partners find a strategic partner, and once this is done, it would take another three years to build a processing plant in Lokichar and the pipeline to Lamu.

Tullow Oil Chief Executive Rahul Dhir said Kenya’s oil project is “coming out of a dark place” but explained that the new plan has “put it in a much better place.”

The plan was developed in response to the collapse of oil prices last year following a sharp decline in demand as countries put in place restrictions to curb the spread of Covid-19.

“You play the hand that you have been dealt. I have told this to my board of directors. History in this project is perhaps the best friend but could also be the worst enemy,” said Mr Dhir on the challenges that the project has faced, resulting in the timeline for commercial oil production being moved from 2022 to 2023, 2024 and now to 2025.

“There have been a lot of expectations that have not been met. This is such that even with the revised plan, you have to deal with the history and the doubts,” he said, adding that the challenges offer invaluable lessons in getting it to the commercial phase.

Dhir explained that the delays have been costly in terms of accessing financing for the project.

Banks and other financial institutions are increasingly shunning financing fossil fuel projects, and their preference has shifted to projects such as wind and solar as well as electric cars.

He expects the credit crunch to get worse, noting that while emerging oil producers such as Kenya may have easily found financiers five years ago, it is more difficult today and could get worse in the coming years.

“Timing is key. If this project was done five years ago, it would have been much easier to get financing. Today it is difficult. If we wait another year, it will be more difficult,” said Dhir.

“Every day that goes by, we are losing opportunities. Moving forward is a matter of urgency.”

The new plan by Tullow resulted in the lowering of the cost of producing one barrel of crude oil in Turkana to $22 (Sh2,442) per barrel.

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