The Road To Being A Profitable Oil Producing Region Is A Tough One



Back in 2012, Tullow, a UK oil and gas company, struck oil in Kenya’s Lokichar basin. This was followed by numerous media reports pointing at the riches that had befallen our dear nation.

Further, the government, in an effort to politicize the find, built expectations that Kenya would be an oil rich country in the near future.

Seven years down the line, and with 750 million barrels of crude oil considered commercially viable, Kenya’s dream to be a pioneering oil producer in the East African frontier region is yet to be achieved. Set back after set back has slowed our initial momentum – reality has set in.

From the drop in oil prices between 2014 and 2015, which severely hampered exploration activities in the Turkana region; delays in construction of the new Lamu port and proposed refinery; to Uganda pulling out of the Kenya – Uganda pipeline deal in favour of a deal with Tanzania, our path to being an oil-producing State has been a tough one. However, with the Early Oil Pilot Scheme (EOPS) making progress, Kenya may soon sell its first shipment of crude oil in the international market.

Despite these numerous setbacks, the Ministry of Energy has not given up on the dream. As noted above, EOPS is currently back on track with Kenya’s first shipment of crude oil to international markets expected in the coming months.

This will serve as a major step toward the realization of Kenya’s target to be an oil producing state. Similarly, as was pitched during the introduction of EOPS, it will enable Kenya determine the marketability of Kenyan crude oil in the international markets, and therefore determine the viability of a Final Investment Decision in respect of commencement of production activities in Kenya’s Lokichar basin.

While the above is indeed progress in the right direction, we must be careful not to get ahead of ourselves as we did back in 2012. The road to being a profitable oil producing region is a tough one – as evidenced by the seemingly never-ending obstacles over the past seven years.

As such, rather than placing our focus on the end result, that is the expected petrodollars, the Ministry of Energy is urged to focus on ensuring that effective measures to take advantage of the resultant petrodollars are in place. The legislative, regulatory and institutional frameworks required to successfully be an oil producing nation, not another victim of the resource curse, must be given precedence over the financial benefits of the resource.

While it may be argued that seven years is a long time to wait to see benefits arising as a result of the precious resource – we must call for continued patience. A rushed attempt to exploit the resource will ultimately backfire, and may risk falling prey to the proverbial resource curse.

Karen Kandie Is the Managing Director IDB Capital

This article was first published by The Star Newspaper 

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