LOOKING AHEAD: Kenya's oil production faces obstacles

• Published date: 01 February 2015
• Date: 01 February 2015
• DOI: http://doi.org/10.1111/oet.12228

LOOKING AHEAD

Kenya’s oil production faces obstacles

Kenya’s plans to begin the commercial production of

oil in 2017 face a number of obstacles as low oil prices

threaten to delay exploration and development work.

ere are further challenges as communities in areas

where production is due to take place demand a greater

shareofthewealthcreatedbytheoilindustry.ereis

also a growing threat from terrorist g roups from neigh-

boring Somalia.

Ambitious aim

Kenya’s aim to begin commercial production in 2019 is

an ambitious one given that the rst commercia l discov-

ery was only made in 2012. e discovery in question

was made by the British-registered independent, Tullow

Oil, in the county of Turkana, in the north-west of the

country. e rst nd was rapidly followed by others,

helping to swell Kenya’s recoverable reserves to an esti-

mated 600 mnbbl at the end of 2014. Appraisal drilling

is expected to increase this gure to more than 1 bnbbl,

according to Kenya’s Ministr y of Energy. Tullow’s dis-

coveries lie in the Lokichar Basin, which is part of the

much larger East African Ri Basin, which is believed to

contain several more commercial hydrocarbondeposits,

both in Kenya and nearby countries.

Kenya has four main sedimentary basins, and discov-

eries have been reported in a number of areas, though

most are in the north-west, near Tullow’s original nd.

Among these are a small discovery oshore called Sun-

bird. While the nd itself is not large– and may not

evenprovetobecommercial–itistherstdiscoveryo-

shore and may indicate the pre sence of a completely new

oil-play. Lying onshore from Sunbird is the Lamu Basi n

where oil has also been found, but discoveries so far have

been small and uncommercial.

Of recent interest is a dis covery of natural gas in an

explorationareainnorth-easternKenyaknownasBlock

9 where a well at Sala drilledby Vancouver-basedAfrica

Oilencounteredgasinanareathathadseenanearlier

discovery, at Bogal. All this had led to the belief– subject

to further drilling–that the region contains a commer-

cial gaseld. If so, that would be of particular interest to

the national electricity company, Kenya Power, which is

trying to double the proportion of Kenyans with access

to electricity from the present gure of 35%, and whi ch

needs to increase generating capacity in order to bring

this about.

Tight timetable

Following Tullow’s early discoveries in 2012 and 2013,

there was talk of rst oil as early as 2016, at which time it

was proposed to begin production somewhere around

10,000 bpd. e timetable has slipped, however, for a

number of reasons.

A fundamental problem is the relative isolation of the

oilelds from the main urban areas around Nairobi, in

eastern Kenya, and the coastal area around Mombasa.

ere is also no nearby access to tidewater from where

crude oil could be exported. e original aim was to

move the crude oil out of Turkana by road or rail, but

this would have limited output to the 10,000bpd level

proposed for the initial production.Kenyan ocials have

since ruled out th e construction of a railway on grounds

of cost.

What is needed for the long-term future of the

north-western elds in the Ri Basin is a pipeline to

the coast. ere is, in fact, a proposal for an 800-mi

pipeline from oil elds under deve lopment in neighbor-

ingUgandatotheKenyancoastatLamuwhereacrude

oil export terminal is to be built. e line would pass

through north-western Kenya where it could be linked

to the oilelds in the Lokichar Basin. ere is even

aproposaltoextendthepipelinesystemnorthwards

to South Sudan in order to allow the export of crude

from that land-locke d country to reach the open seas.

A decision on the Ugandan pipeline is due in 2015. If

given the go-ahead then, the pipeline could probably

be completed in time for the planned 2019 start-up of

Kenya’s Lokichar elds.

e Lamu pipeline is not the only option for Uganda,

however, and the oil companies might opt instead for

a shorter route to the Indian Ocean via Nairobi to the

Kenyan por t of Mombasa, whi ch would have the fur-

ther advantage of being for their exclusive use. More-

over, the Lamu route will require t he agreement of a

number of other interested parties on impor tant mat-

ters such as capacity, access, nancing, and the timing of

its construction. ese parties include the oil companies

aected and the governments of Uganda, Kenya, South

Sudan– plus that of Ethiopia, which also wants a link to

the Lamu pipeline: all of which could delay the building

of the line beyond 2019.

Political obstacles

Oil companies in Kenya face further hurdles before

they can begin commercial production, many of which

areofapoliticalnature.ereissomeoppositionto

oil developments on environmental grounds; but the

main issue for many in Kenya is how the wealth cre-

atedbyoilistobesharedamongthepopulation.ere

arecallsofageneralnatureforthelevyingofsuit-

able tax rates, to which the government has responded

by raising signature bonuses and calling for a 50-50

prot split on crude oil sales between the state and the

© 2015 John Wiley& Sons Ltd