Kenya signed an oil deal with oil firms after oil was discovered in the country's northwest region. The deal it has signed means that oil will be processed in the country since a new crude oil processin faciligty will be developed.
Kenya entered into this deal with Total, Tullow Oil and Africa Oil Corp. The new crude oil processing facility to be developed will be producing 60,000 to 80,000 barrels per day. Kenya is deeply committed to venturing into commercial oil production within a few years to come.
The most fundamental aspect of the agreement provides “a framework and commercial certainty required to move ahead with negotiating the fully termed upstream and midstream long form agreements ahead of the Projects’ Final Investment Decision (FID)." This is according to Kenya’s Ministry of Petroleum and Mining, as said in a tweet.
Discoveries will be in Blocks 10 BB and 13T in South Lokichar Basin. Another crucial part of the deal is for the oil firms to secure strong financing for an export crude oil pipeline. Tullow Oil discovered commercial quantities of crude oil in South Lokichar Basin in 2012. The firm has never stopped its "exploration and appraisal drilling campaigns in Kenya."
It is estimated that there are 560 million barrels in the basin in proven and probable reserves. “The infrastructure installed for the Foundation Stage will be utilized for the development of the remaining oil fields and future oil discoveries in the region, allowing the incremental development of these fields to be completed at a lower unit cost,” Tullow Kenya said in a statement.
Oil is an important commodity that essentially makes the world functional. Countries which have oil have managed to turn their economies around, especially countries like the United Arab Emirates, Saudi Arabia and Qatar. However, African countries have not yet realized the massive gains that can be enjoyed from oil. The same goes for countries like Venezuela.
For Africa, the problem is that the countries which have oil do not have the capacity and equipment to process their own oil. As a result, oil is exported to developed countries which can process the oil then send it back to Africa. It is an indictment on Africa that at times one hears headlines about fuel problems in countries like Nigeria and Angola.
If Kenya's deal goes well, it implies that the East African country will be in a position to process its own oil and export it as a finished product. This will result in gigantic profits for the country. If complemented with good governance, accountability and transparency, Kenya will be transformed into a formidable economic powerhouse. But if the oil is handled in a shady manner, the people of Kenya will never enjoy the economic benefits that come with oil discovery.
A potential downside is that foreign oil companies are never concerned about developing the host country. Massive environmental degradation could be witnessed, and nothing will happen to change that situation. The companies may find ways to evade tax and thus send back all super profits to their respective developed nations.
On the overall, oil discovery in Kenya is a useful opportunity for Kenya to benefit huge economic gains. Hopefully, this deal will be accompanied by good governance, transparency and accountability. Oil discovery is notorious for causing conflicts and one can only hope this won't be the scenario with Kenya.
Header image credit - Reuters