With the current spread of the Covid-19, most economic sectors in Kenya have been affected. For instance, the international flights’ ban has affected the export industry, mainly the horticultural and agricultural departments. Most experts predict that even though the Coronavirus may not adversely affect some African countries, the economic shock, the Government’s response, and the disruption will leave long-term effects.
One sector that has been affected the most is the Kenya’s oil industry. Kenya, being one of the biggest economies in East Africa, and a new entry into the oil exports industry, is experiencing low oil costs. There is also the possibility of investors abandoning their pledges.
Status of the Oil Industry Globally
Towards the end of the q4 2019 (the last quarter of the year 2019), oil prices had already started dropping. This trend can is as a result of the economic slowdown and OPEC politics. The Coronavirus exacerbated the situation. For instance, at the time of writing this, the US oil prices are negative. The prices in other countries are still above zero but at $10 or $20 per barrel. As a result of this drop, Tullow, the oil production company in Northern Kenya, is finding it hard to produce more oil for the international market since it’s less profitable.
Tullow was hoping to produce Kenya’s oil on a large scale and introduce it to the international market through the FID (Final Investment Decision). However, for this to be accomplished, Kenya has to fund the project. A lot of money will be spent on the initial stages of construction. The problem is that since now Kenya is focused on dealing with the Covid-19, they may not meet the FID target by the end of this year. Tullow has been dealing with some disputes too.
Problems faced by Tullow in the past few months
Tullow didn’t have much success in exploring oil in Guyana or producing oil in Ghana. As a result, their CEO resigned. These issues also led to losses that amounted to Sh 180.6 Billion. Many Kenyan employees were also laid off. At the beginning of this year, Tullow had announced that they might sell part or the whole of their Kenyan stake to a third-party for development. However, this may not be the case. According to Mr. Mbogo, the Managing Director at Tullow Oil Kenya, their efforts are towards completing the FID by the end of this year.
What does the future hold for Kenya’s oil industry?
As a result of the pandemic, it will be harder now for Tullow Oil to sell their Kenya’s stake since few investors may want to acquire such a project in these troubled times. Most industries ceased operations, and people aren’t traveling anymore; people aren’t consuming energy at the expected rate. As a result, oil reservoirs are full. According to George Bodo, Director at Call Street Research and Analytics, for the oil prices to get back to normal, economic activities will need to get back to normal.
Since the oil prices are still low, the Kenyan Government may delay its ambitions to produce oil on a large scale. The exploration of new areas may cease. Also, the crude oil from Kenya and Uganda was on a pilot scheme. It didn’t fetch the highest prices in the international market.
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