First-Ever Oil Shipment Leaves Kenya & What It Means for the Economy

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The final week of August may have been a momentous one in Kenyan history – but it appears to have been a cause for consternation as much as it was a cause for celebration. As of now, Kenya has joined the world’s ranks of oil-producing nations, but there appear to be many arguments on the horizon about how the potential riches of a Kenyan oil industry might be divided. 

Finding oil in the ground has been a surefire way to get rich for centuries. The phrase ‘struck oil’ has long been a metaphor for ‘had a lucky break,’ and many mobile slots games make reference to mining practices in their content.

The connection between playing mobile slots in related casinos or their sister sites and mining is obvious – in both cases, someone is paying money to take an action which may or may not result in them getting rich. Mobile slots players are chasing a jackpot. Miners are looking for oil or other precious materials in the ground.

Kenya has now taken its seat on the casino table, but it appears that the house may not ultimately turn out to be the winner in this gambling scenario. 

The shipment of oil which left Kenya last Monday contained 200,000 barrels, and made the country the first-ever East African nation to export oil abroad. It’s a drop in the ocean, however, compared to how much oil is believed to be below the surface within Kenya, waiting for someone to come and drill it out. Before any drilling takes place, though, it seems that officials and ministers may have to think again about the division of wealth. 

Under the current laws, which were introduced by President Kenyatta earlier this year, 75% of the value of all oil revenue goes directly to the central Government. Of the money that remains, twenty percent goes to the county that produced the oil, and five percent goes to the community living in the vicinity of the oil field.

There is now some objection to these figures from community leaders in the area which supplied the oil shipment. The oil came from Turkana County, and officials there say that they were promised a different split of the money when the process began. 

Using a colorful metaphor, Turkana County’s Deputy Governor Peter Lotethiro said that according to his people’s tradition, the owner of a goat must be left with the legs when a goat is slaughtered to please a visitor. He now wants the Government to ensure that Turkana gets its leg. Whether or not the metaphor is rooted in fact is unclear, but the method is very clear: Lotethiro believes that Turkana should be getting a greater share of the spoils. 

President Kenyatta is aware of the comments, and has used the same boat-based imagery in his response. He says that while he appreciates the concerns of local leaders, his responsibility is to ensure that every Kenyan gets a piece of the goat, and that diverting too much wealth to one particular community or region is opening the doors to corruption – and fighting corruption has been one of the recurring themes of his Presidency to date. 

The question of who gets what is something of a moot point for the moment. The shipment of oil that was dispatched on Monday was effectively a test load to demonstrate that oil could be obtained, extracted, and shipped from Kenya. Getting more oil out of the ground in sufficient quantities to make the process economically worthwhile will not be possible without considerably more powerful equipment – and the equipment does not yet exist.

To export the shipment that was sold, the oil was taken from the ground, and shipped across the country in trucks – a time consuming, costly, and laborious process. To become a major exporter of oil, Kenya must install oil pipelines. The benefits of doing so are self-evident; experts believe that reserves equivalent to as many as 600 million barrels of oil exist below the ground in Turkana.

At full yield with excellent digging equipment and efficient pipelines, the field should produce 100,000 barrels of oil on a daily basis in five years time, but putting the pipelines and drills in place requires external investment. Accordingly, the Kenyan Government has found expert partners. 

One of those partners is the British company Tullow Oil, who have so far spent $2bn in the country to get to this point. It’s anticipated that they’ll now seek to invest more in order to get oil flowing, as will French partners Total SA. It’s hoped that work on the necessary pipes will begin in 2020, with optimum yield achievable by the end of 2024. If successful, the new oil industry will bring significant wealth to Kenya, as well as creating thousands of jobs in and around the oil fields. 

Could this be the start of a new golden age in Kenya? It would be foolish to make wild predictions, but history is full of stories of countries and regions who have improved their fortunes with the discovery of oil. Russian oligarchs and Texan oil barons still live off the profits of their lands in their home countries.

We may soon have to consider what the correct label for a Kenyan oil billionaire should be. We should be cautious, though – the oil reserves were first discovered in 2012, and petty squabbles over land ownership rights and security issues prevented any oil being sold for seven years until now. It’s likely there will be more challenges in the future, and so Kenya should not celebrate until a fully-fledged oil industry is in situ in the country.  

There’s also the question of environmental damage and the global ambition to move away from fossil fuels, although that may not be an issue for the immediate future. The world at large may be attempting to turn to cleaner and more renewable sources of energy, but the reality is that the point of switchover from oil to renewable power is likely to be decades away. That gives Kenya plenty of time to make the most of its natural gifts, and plenty of opportunities to find people to sell the oil to.

This maiden shipment was sold to China, which may prove to be the largest oil buying nation in the world of the future. While Western pursue cleaner fuels, China and the East still largely run on oil and gas. So long as there’s a need, it appears Kenya may now be well placed to serve it.