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Why Kenya’s dream of oil riches could be all but over

OPINION
By XN Iraki | February 16th 2021
A charging point for electric cars in Hamburg, Germany. Some Western countries are keen on phasing out the century-old internal combustion engines by 2040 or earlier. [XN Iraki, Standard]

For some curious reasons, there wasn’t much excitement when Kenya discovered oil in 2012.

Was it anticipated? Did we know all along that there was oil underground?  

Oil discoveries have traditionally led to extremes. Some countries use their oil wealth to develop and improve the welfare of their people. Examples include Norway and the United Arab Emirates (UAE), which is best espoused by the city of Dubai.

Elsewhere, oil money is squandered. Do I need to name the culprits? And in extreme cases, it leads to the oil curse, where a country was better off without oil as factions fight over the newly found wealth.

Some have argued eloquently that corruption in Kenya is driven by lack of a major resource like oil. The pooled taxpayers’ money is the 'oil'.

Kenya seems to have escaped both. Why? We have not exploited enough oil to make enough money to attract enough attention both locally and beyond the borders.

The reason given is that our oil is waxy and hard to transport and refine. And the quantity may not be large enough.  

But there are other reasons. One is that our economy was so diversified before the oil discovery that minimal disruption was expected. Oil is one of our many sources of revenue. 

But there was another better reason our oil dream could be deferred indefinitely in the wake of electric cars and greening of planet Earth. 

With climate change becoming a global crisis, the shift towards green energy from solar to wind will accelerate.

We expect new US President Joe Biden to make it a cornerstone of his legacy.

His predecessor Donald Trump was not a firm believer in climate change; he supported fossil fuels, putting jobs over the environment.  

This shift could hurt our market for oil and its products. Think of the electric car. Dwindling demand for petrol and diesel means oil prices will plunge, making it uneconomical to explore and exploit the energy source in the long run.

Add the potential of solar, geothermal and wind, and the market for oil thins even further. In Kenya, most oil is used as fuel in transport. Soon, we shall be charging our cars like phones or shavers.  

Where do we go from here? Currently, oil prices are going up largely due to the positive effect of the roll-out of the Covid-19 vaccine. As we vaccinate more people, prospects of economic recovery rise. This will create demand for goods and services, including transport and oil. 

Oil prices might rise because the Organisation of the Petroleum Exporting Countries (Opec) has learnt a hard lesson after oil prices tanked due to Covid-19. This would make it easier for them to reduce the supply and raise prices. 

Will this be counterbalanced by further exploitation of shale and fracking in the US driven by high prices?  

I was concerned by the rise in oil prices during Covid-19. This might have left us with little room for manoeuvre as economies start recovering after the Covid-19 vaccine becomes widespread. Oil is an important inflation driver. 

While electric cars and renewable energy threaten our oil dream in the long run, we must confront the current reality of oil-based economies. It will be a long time before we shake off our reliance on oil. And there could be surprises. 

Developed countries could get a soft landing by exporting fossil fuel-based cars to developing countries.

It’s possible that in the not-so-distant future, the price of cars based on the internal combustion engine will drastically reduce to entice us to buy the inventory of cars in developed countries. It’s also possible that car manufacturers could give us an offer we can’t refuse by setting up manufacturing plants based on the old technology here, creating jobs.

After all, a jobless and hungry man does not care much about climate change or pollution. 

Are we prepared for the transition from oil to electric cars and renewables? Developed countries cleverly did it. They came up with hybrid cars to ensure their oil-based industries do not die suddenly. In other words, they are buying time before switching fully to electric cars.  

This was a compromise route to fully electric cars; some countries will do away with the century-old internal combustion engine by 2040 or earlier. 

What shall we do with our oil? Is this why we did not build an oil refinery and prefer others to refine fuel for us?

It is hard to imagine an 'oil-less' economy. This is becoming a reality. Let us humbly accept our oil discovery came late.

Why not focus on the next technology, electric cars and renewable energy sources and forget about oil?

Can we start by making Elon Musk a Kenyan citizen? This is easy since he was born in South Africa. Many South Africans, mostly Boers, are buried in Kenya near AIC Church in Nyahururu.

A few South African soldiers are also buried in our Commonwealth cemeteries. We can ride on this historical connection.

- The writer is an associate professor at the University of Nairobi  

 

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