By Catherine Kuria
Following many years of exploration for oil and gas in Kenya, economically viable oil deposits were confirmed in Turkana and Lamu Counties, while gas deposits have been confirmed in Wajir and Kajiado Counties. In Turkana, about 70,000 barrels have been extracted and stored awaiting transportation to Mombasa for export. Exploration of the commodities is still going on in various parts of the country.
On 3rd June 2018, the President flagged off the first consignment of 600 barrels by road in the Early Oil Pilot Scheme, signaling a new dispensation for the country. Immediately thereafter, it was reported that hundreds of jobseekers began pitching camp at the Kenya Petroleum Refineries Limited (KPRL) depot in Mombasa, seeking employment opportunities. Such interest has also been observed among Kenyan professionals and investors, locally and in the diaspora. This reveals the high hopes that Kenyans have in this emerging and growing industry.
The government plans to commercialize oil export by 2022, and projects that within the next few years, the oil and gas sector will be Kenya’s fourth highest foreign exchange earner after tea, coffee and tourism. The long-term plan is to transport crude oil through a pipeline along the LAPSSET Corridor, currently under development. The LAPSSET project includes a port, Inter regional standard gauge railway lines, a crude oil pipeline and a product oil pipeline.
In addition, the LAPSSET corridor is designed to encompass other economic infrastructure such as international airports, resort cities, special economic zones, Industrial parks, and mineral exploration to generate and harness the economic and business activities for the corridor. The project is expected to have an impact on the livelihoods of 166 million people in Kenya, Ethiopia, South Sudan and other East African countries.
Further, the government is committed to eliminating use of charcoal and firewood in the country which have led to gross environmental degradation. There is a move towards the use of LPG, which is expected to bring down the use of wood fuel. These developments are rapidly changing Kenya’s economic landscape, and presenting new opportunities for all Kenyans. The oil and gas sector will not operate in isolation. It will rely on other industries including banking, insurance, hospitality, education, accounting, transport and agriculture among others.
Information around the ongoing development is still in many ways scanty, given that most of the work so far has been undertaken by the government and multinational companies. There is therefore need to unpack the concept of local content.
The Petroleum Exploration, Development and Production Bill (2014) defines Local Content as the use of Kenyan local expertise, goods and services, people, businesses and financing for the systematic development of national capacity and capabilities for the enhancement of the Kenyan economy.
In its basic definition, it is the commitment to generate in-country capability to support the long-term development of the emerging oil and gas sector. It represents the opportunity to maximize the use of local human capital, goods / material resources and services, promote real and effective partnerships, as well as benefit local business and communities through: local business development (goods and services), local employment (re-skilling, job development, redeployment) and creating sustainable local economic development.
The oil and gas upstream sector is dominated by foreign investors in terms of supply of technical exploration and production skills, goods and services. On the other hand, local content is characterized by semi-skilled and unskilled labour, and limited supply of goods and services. This implies that the cost of skilled labour, goods, services and supplies are high at the beginning but through a well-planned and structured local content strategy, the cost of local technical skills and labour will be available and cheaper in the long run.
It is against that background that IMAC, a training consultancy firm, organized a one-day workshop for individuals, Investors, corporates and entrepreneurs that ultimately feed into or feed off the oil and gas industry. It was a platform for interested parties to understand various aspects of the industry and identify investment, innovation or employment opportunities. It aimed at essentially answering two core questions; what is in it for me or my company? How do I or my organization plug into the oil and gas business or supply chain?
Key industry speakers and policy makers interacted with the participants through presentations and plenary discussions. The main plenary speakers in the workshop were drawn from the State Department of Petroleum, Ministry of Energy & Petroleum, LAPSSET Corridor, Tullow Kenya B.V, National Oil and Jomo Kenyatta University of Agriculture and Technology (JKUAT).
Status and plans for petroleum activities in Kenya
Kenya has a total of 4 petroleum sedimentary basins namely: the Lamu Basin, Anza Basin, Mandera Basin and tertiary Rift Basin. The petroleum basins cover a total surface area of 485, 000 km. A total of 83 hydrocarbon wells have been drilled in the country. Recent drilling rates amount to about 9 wells per year as compared to historic drilling rates – less than 2 wells per year before 2012. These statistics however are bound to change due to the current world oil prices.
The 4 petroleum basins have been subdivided into licensed blocks. 36 blocks have been licensed to 18 international oil companies and block 14T to the National Oil Corporation of Kenya. Mr. James Mbugua Ng’ang’a, the principal superintending geologist, State Department of Petroleum observed during the workshop: “We license blocks for various phases of exploration. After every phase, the company is required to relinquish 25%. From those relinquished parts we create some more blocks.”
Crude oil has been discovered in Ngamia, Amosing, Twiga, Ewoi, Etuko, Ekunyuk, Ekales, Etom and Agete. Gas has been discovered in Mbawa and Sala while in Sunbird, both oil and gas has been discovered. The exploration activities have currently been slowed down due to depressed international crude oil prices. An appraisal programme in South Lokichar is currently in progress. Working hydrocarbon systems have been discovered in the Cheptuket exploration well in Kenya’s Kerio Valley. Mr. Ng’ang’a continued: “Before you allow a company to develop a field, it has to submit a development plan where we have people on board following the matter. The draft field development plan was submitted in December 2015 and it is being updated as further data is availed. The final field development plan is to be submitted for approval by the government.”
The Kenya and Uganda Governments agreed to develop their resources with separate export pipelines in April 2016. Uganda opted to use the Tanga route through Tanzania while Kenya preferred a pipeline from Lokichar to Lamu port. A Joint Development Agreement was signed between the Kenyan Government and Kenya Joint Ventures was signed on October 24th 2017. The contractor for ESIA is on ground and has already started work. The first oil production is planned to start in 2021.
Crude oil and natural gas discoveries in Kenya’s 4 sedimentary basins are evidence for active and working petroleum systems. A plan to reduce the size of blocks and license the vacant ones is in place to increase oil and gas operations. The ministry still needs to promote and develop capacity in oil and gas techniques in skills and competences to allow for local content participation.
Investing in Kenya’s mineral sector where global challenges are the opportunities
Kenya has a surface area of 582, 650 sq km with expansive areas suitable for Investment. We have substantial untapped mineral resources. Location at the heart of East Africa and direct access to the sea makes the country strategic business partner in the region. Heavy minerals and sand occur at the Kenyan coast. Recently, deposits of about 3.2 billion tons containing titanium were discovered. Carbonatites that are known to contain several minerals including Rare Earth Elements (REES) are found in the Mrima Hills, a southern part of the coastal region.
Possible areas of investments include collaboration in geological mapping, mineral processing for value addition, manufacture of gold jewelry, gem stone cutting and polishing, investments in industrial minerals such as cement and mineral exploration and mining. Prof. Bernard Kipsang Rop, chairman , department of mining materials and petroleum engineering ( JKUAT) observed during the workshop : “Kenya has a substantial untapped mineral resource and is striving to create an enabling environment to attract increased investments in the mineral sector.”
Liquefied Petroleum Gas (LPG)
The National Oil Corporation of Kenya is a fully integrated state corporation involved in all aspects of the petroleum supply chain covering the upstream, midstream and downstream operations. National Oil has a Liquefied Petroleum Gas (LPG) market share of 7.1%. Some may wonder, why LPG? LPG has to have a compelling proposition and must be understood by consumers and policy makers as a clean safe fuel. It is the solution to air quality associated with indoor pollution.
According to the last national census, at least 6.57% of Kenyan households rely primarily on clean fuels for cooking. LPG generates revenue for the government and a rise in GDP leads to a rise in LPG consumption. This creates direct and indirect employment opportunities. It also encourages capital investments and solves the energy trilemma i.e. environmental, price of energy and security of supply.
Andrew Omolo, head of sales and marketing, National Oil during the workshop said: “LPG bunkering- a third of all LPG is moved by ship. It is also evolving from its most common use as a cooking fuel and is being used in the marine industry for propulsion of ships, in power generation and auto gas, thus creating opportunities in mobile power.” This is one of Kenya’s most promising sectors in the years to come. Find your space and let’s grow together.