Critical oil lessons from Ukraine war

Tuesday, March 15th, 2022 00:51 | By
Firefighters work on an inferno after bombings on the eastern Ukraine town of Chuguiv. AFP

As the war in Ukraine escalates, Kenya remains between a rock and a hard place as it tries to come to terms with the resultant spike in the cost of fuel and wheat.

Apart from wheat imports, the cost of crude oil will soon hit an unprecedented $150 (Sh17,124) per barrel. This will make Kenya bemoan lost opportunities following delayed exploitation of oilfields, thanks to delays in reaching final investment decisions years after the country discovered the precious commodity.

For example, Tullow Oil entered Kenya in 2010 but only presented its long-awaited revised development plan for oil production for approval last December. The explorer expects to recover 585 million barrels of oil from the project over the full life of the field from the previous estimate of 433 million barrels.

The good news is that additional discoveries estimated at 700 million barrels may have been found in the Lamu basin which makes Kenya a frontier nation in oil and gas exploration.

With these, the way forward must be to develop the requisite infrastructure to develop the deposits, and ensure the country can quickly use available resources.

As the international oil markets shake from the Russia- Ukraine war, the higher crude oil prices are bad news for Kenya which has been reeling from the effects of increased crude prices, which were already on an upward trajectory.

Kenya's government must, therefore, think of ways to cushion the economy and consumers from higher oil prices. We can do this by having strategic reserves, or by moving ahead to develop our oil resources in Turkana for domestic use.

The issue of refining for export was on the table in Kenya about two years ago, but the conversation came to an abrupt end. This conversation needs to start once again and look at the possibilities with an open mind.

Proposals to consider modular refinery-crude oil processing facilities with capacities of up to 30,000 barrels per day, for the Turkana oil, as opposed to building a refinery that is capital intensive, is an idea that must be considered. This may solve Kenya’s reliance on imported oil products.

With escalating crude oil prices, the Treasury has had to borrow from the fuel subsidy kitty to keep the prices low, though questions abound as to how long this can hold given the Ukraine and Russia crisis, the opportunity cost will come haunting the nation soon.

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