Kenya will become the first of the East African nations to export oil – not Uganda or the Democratic Republic of Congo, but Kenya!
The country known more for its agriculture and its traditionally exported teas and coffees will be moving its oil as early as 2016, becoming a regional leader and shedding its dependence on energy suppliers like Royal Dutch Shell Plc (NYSE: RDS-A), as Bloomberg reports.
Tullow Oil Plc (LSE: TLW) finally had its breakthrough when it discovered key oil reserves last year, and Kenya surprised everyone by overtaking anticipated production dates in Uganda, where crude was discovered more than seven years ago.
By 2014, the U.K. explorer should be pumping in Kenya.
Tullow, which is also heading a Uganda operation, hit some snags in negotiating terms with the Ugandan government for its 1.7 billion barrel discovery. This opened the door for Kenya to lead the way in East Africa. Once Uganda does eventually decide to export, the landlocked country will also need to export through Kenya.
Kenya has been more than pleased to push for production and continued exploration. Despite being the biggest and most advanced economy in the East and Central African region, Kenya is still a developing country. Many of its citizens live destitute and impoverished lives, where people starve every day.
Oil exports could be the best thing to happen for the people of Kenya.
Up until quite recently, everybody thought Uganda and the Congo would lead the way, as they attracted exploration efforts from China’s CNOOC Limited (NYSE: CEO) and Total SA (NYSE: TOT) of France. Other companies were focusing on the African nations of Nigeria and Angola, as well as Mediterranean resources in Libya and Egypt.
With Tullow’s persistence, Kenya snuck up on everybody.
Kenyan Potential
Tullow made its landmark discovery in the little known and underdeveloped region of Turkana in part of Kenya’s Rift Valley in the northwestern part of the country. Reserves found there may top out as high as 10 billion barrels.
The company then made a 300 million barrel discovery from three key sites in Kenya’s South Lokichar Basin, according to Bloomberg, and recently the Twiga well became the first in the country to produce at commercial rates.
At the onset, shipments will be made exclusively by truck and rail.
But there are already talks to develop and build a pipeline that would link Kenya with Uganda, South Sudan, and Ethiopia once more discoveries are made. The schematics haven’t been laid out yet, but that’s the idea – to join all oil producers in the region together through a pipeline that would spit it out to a terminal on the Indian Ocean coast.
Tullow and Africa Oil still need to hand over field development plans to Kenya’s government.
After additional exploration and development, and after clear strategies have been drawn by surrounding countries, the pipeline will get underway, and that’s when Kenya can begin to dredge itself out of poverty and see its economy take off.
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Getting Behind It
As much as I make it seem like Kenya just stepped out of the shadows, the nation’s been at it for years – 50 in fact – but only last year did all the hard work finally pay off.
Oswald Clint, an analyst at Sanford C. Bernstein & Co., reported on August 16, according to Bloomberg:
“Of 30 wells between 1960 and 1992, prior to Tullow’s entry, 13 were dry, 12 encountered non-commercial gas shows, and five encountered signs of oil staining or oil shows.”
The Kenyan people haven’t caught a break in a long time…
Every day, Kenya brings in 80,000 barrels of oil at a cost of $8 million. And while the export of tea and coffee keep the nation afloat, it’s not enough to prevent its people from starving to death each and every day. They remain heavily dependent on food aid.
This oil will help them depend on each other for a change, but it won’t prove easy.
The oil lies in one of the most underdeveloped parts of Kenya. Its progress will prove tough. But the government is 100 percent behind it, and it’ll do what it can to push the process.
Tullow and Africa Oil will continue to explore and develop future deposits.
Japan, too, is seeking investments in Kenya’s newfound glory. Marubeni Corp (OTC: MARUY) leads the way and has shown interest in the future of Kenya’s pipeline network.
Kenya and its people will need to show true grit and determination in the near-term, but there’s nothing standing in the way. Tullow will lead as the future of prosperity brings hope to Kenya and its people.
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