Kenya Retains Oil Focus while Looking to Energy Transition
The Kenya Vision 2030 project is aiming to transform Kenya into a newly industrialised, middle-income country which can provide a high quality of life to all its citizens by 2030, in a clean and secure environment. Development projects which are part of the vision’s blueprint are expected to significantly increase the population of Kenya over the next decade, creating a strain on the country’s energy requirements.
Up to this point, Kenya has been a country dependent on the consumption of oil. In 2012, British oil company Tullow discovered an oil reservoir which promises to yield roughly one billion barrels of crude oil. However, due to multiple roadblocks in development, oil discoveries in the northern Kenyan region have yet to be bought to market, and Tullow have since attempted to reduce their stake in the investment.
The Covid-19 pandemic has also meant a significant amount of disruption to oil demand, causing oil prices to deflate further than had been seen previously because of oversupply. Major oil companies have reduced their capital expenditure in upstream oil exploration and production, making it difficult to attract investment.
Focus on Lamu Basin
In the immediate future, it is key that Kenya does everything it can to continue to attract investors in its oil infrastructure. To that end, investment in oil prospects has now turned its attention to the Lamu Basin, where Italian firm Eni are set to begin drilling an oil exploration well to seek the presence of commercially viable oil and gas accumulations.
Although a commercial oil discovery has not yet been made in the area, a discovery at the Lamu Basin would add credence to the prospective success of Kenya’s oil industry. Kenya has only exported a singular consignment of 240,000 barrels of crude oil thus far, obtained from the Early Oil Pilot Scheme which was used to test Kenya’s product in the global oil market before plans for mass production would be put in place.
Mounting pressure from Western governments, climate lobbies, and financiers has also made companies think twice about investing in oil projects such as Turkana in Kenya.
Kenya’s Energy Transition
With regard to renewable energy, however, Kenya has already made significant strides forward, and there is ample potential for power generation from renewable energy sources in the country. The government has sought the expansion of renewable energy generation in its overall power development plan for the period 2017 to 2037, projecting that, by the year 2037, renewable energy sources will provide just over 60 per cent of the installed power capacity in the country.
Geothermal, hydro, wind and solar are all in contention to be a part of the renewable energy mix in Kenya going forward. In recent years, measures to promote investment in the renewable sector have been passed by the Kenyan Government, including the enactment of a new energy act in 2019, which aims to develop the renewable energy sector in Kenya, and the establishment of new authorities to regulate the production, conversion, distribution, supply, marketing and use of renewables.
Incentives for renewable energy generation have also been employed, including certain stamp duty exemptions, tax benefits, and the development of public–private partnerships between the government and renewables companies. This has helped increase investment in renewables in Kenya.
This is not to say that there are no challenges in this area. In procuring geothermal power, Kenya must allow for the fact that there is expected to be a long lead time from concept to production – between five and seven years, the upfront investment costs will be high, along with a heavy investment in transmission and other support infrastructure to existing load centres, and there will be significant resource exploration and development risk.
In hydropower generation too, the challenges are many and varied. Variation in hydrology and climate change, leading to reduction of water levels in reservoirs; relocation and resettlement of affected persons to create room for the construction of reservoirs; the long lead time; and the absence of synergies and competing interests in hydropower management, are all obstacles which must be overcome.
More generally, investment and exploitation of renewable energy in Kenya is impeded by a low awareness of the potential opportunities and economic benefits, limited local capacity to manufacture power components and equipment, inadequate credit and financing mechanisms, and insufficient storage capacity in existing power generating reservoirs.
While the challenges of securing Kenya’s energy future may seem enormous, with innovative thinking and attractive investment opportunities presented by the regulators, Kenya can achieve its 2030 vision.