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Abstract

The oil and gas industry has experienced tremendous changes over the past 40 years. The aim of this report is to explore the energy evolution in Kenya and predict trends between 2015 and 2030.  Apart from exploring the traditional forms of energy (oil and gas), this report explores alternative sources such as geothermal, coal, the wind, and solar power. Additionally, the various shifting trends in the Kenyan political landscape, as well as the security problem arising from acts of terror, are presented. The relationship between the country’s population, economic growth, and the consumption and supply of energy will be explored. The projections for the future will be based on data obtained from various sectors and organizations such as the Kenya Power and Lighting Company (KPLC), Energy Regulatory Commission (ERC), BP Energy Outlook, among others. The report has established that as demand for energy continues to increase, the supply is not commensurate. As the global economy is expected to hit 8.5 billion by 2030, demand is projected to grow exponentially. Kenya relies mostly on biomass, petroleum, and electricity. However, the factors, which affect energy potential, are political instabilities as well as insecurity caused by terror activities. As such, the main way to ensure sustainable energy supply in the future is maintaining a healthy political environment and coordinating in the assurance of security. However, the limitation of the report is the unavailability of updated data on energy in Kenya to inform projections. Nonetheless, the report provides various insights on how the future of oil and gas will be by 2030.

Future of Oil and Gas

Introduction

Kenya is considered as the economic powerhouse of the East African region. The continued economic growth in the country has called for increased supply of power due to the increasing demand. Since the economic decline arising from the post-election violence in 2007/2008, Kenya has been experiencing an economic upsurge over the years (Suberu et al., 2013). With the increasing concern for global warming and climate change, there has been a need for the development of energy sources, which are not only efficient and cheap but also which have minimal effects on the environment. As such, the active development of geothermal and coal markets reinforces Kenya’s position as the Africa’s producer of clean energy (ERC, 2016). Kenya has undoubtedly been the leader in the use of clean energy in the region. However, with the potential evolution of the world economy, the question remains as to whether the energy sources will be sustainable by the year 2030. This report provides a global, regional, and Kenyan energy outlook and projections for energy demand and supply by 2030.

Energy Outlook Globally

The past 40 years have proved that the rate of economic activities determine the rate at which energy is required. However, according to Hossain (2012), this has not been the case in the past 20 years as technologies, as well as the growth in population and the policies of governments, have had significant influences on the development of the energy sector. By 2030, it is expected that the global population will hit 8.5 billion from the 7.3 billion in 2015 (World Energy Outlook, 2016). These demographic changes will have tremendous effects on the energy landscape. Specifically, by 2030, the global oil supply is expected to rise by over 70% (Ronoh et al., 2015). The effects of climate change have seen renewable energy sources have increased focus by various countries globally. The projected growth in the final energy demand is expected to rise by 57% by 2030 (ERC, 2016). The following figure provides the global energy consumption from 1950 to 2050 regarding source.

Figure1: global primary use of energy. Obtained from IEA, 2016.

Energy Demand and Supply Globally

The demand for energy has continued to grow with the increase in global population. Notably, people are reliant on energy supply on a daily basis. The demand is expected to grow and the situation is likely to be worsened by 2030 (World Energy Outlook, 2016). The global population, which is projected to rise to 8.7 billion in 2030, will make meeting the demand for energy quite a challenge. The America Energy Information Administration predicts that the rate of the consumption of energy will be twice as high in 2030 compared to what is consumed today. The reason for this type of consumption is increased economic growth since the advent of the 21^st century, especially from the developing countries. Specifically, in the years between 2015 and 2030, energy supply and demand will have a more 2% annual growth (ERC, 2016). The measures taken to ensure satisfaction in the level of energy demand will have effects on the environment. Although other different continents will have varying rates on demand and supply, Africa will have the modest demand of 3% per year. Currently, African accounts for only 5% of the global energy demand (Schilling et al., 2015). However, this trend is expected to change with increased economic activities in the region. The following is a symbolic representation of global energy demand and projections for the future.

Figure 2: World energy demand. Obtained from IEA, 2016

Energy Outlook in the Sub-Saharan Region

African makes 15% of the world’s population but only consume 5% the world’s energy output. In the sub-Saharan region to which Kenya belongs, rapid economic growth has been experienced, and energy use has risen by 45 % since 2000. Most of the countries in the sub-Saharan Africa hence started to unlock their large sources of renewable energy and almost half of the growth in electricity supply and generation will come from renewables by 2040 (ERC, 2016). Notably, hydropower accounts for one fifth of the power supply currently, but this is only less than 10% of the technical potential, which has been utilized. The first largest source of power in Africa is hydropower while the second one is geothermal. In East Africa, Kenya and Ethiopia have embraced the geothermal sources to supplement their hydropower generations. A 40% demand for bioenergy is expected to exacerbate the energy strains by 2040. Notably close to 30% of the global discoveries made in the last seven years have been made in sub-Saharan Africa. The economies of the sub-Saharan African countries will quadruple in size while energy demand grows by 80% by 2030. The following is a graphical representation of the energy consumption in Africa by sectors.

Figure 3: Electricity consumption in the various African regions based on industries. Obtained from ERC, 2016.

Energy Outlook in Kenya

Kenya has various sources of energy. However, the main ones include biomass, petroleum, and electricity. Specifically, the percentage of the use of biomass is 69% while that of petroleum is 22% and electricity comes third at a rate of 9% (ERC, 2016). Currently, wind power is being used as well as geothermal power and solar energy. Biomass is used in the form of wood fuel as well as charcoal mostly in the rural areas and by the poor households in cooking and heating. It is estimated that over 80% of the rural population relies on biomass. Petroleum is used mainly by the middle and upper class. Currently, 100% of the oil used in Kenya is imported; however, commercial oil deposits were discovered in the northwestern parts of the country specifically in Turkana County in 2012 and exploration has started (Maina, 2016). Africa Oil and its partner Tullow Oil stated that the oil deposits are commercially viable. In the meantime, the country only has a refinery based in Mombasa, which can handle 70,000 barrels per day. 

On electricity, the main generation is done from geothermal at 47%, thermal at 13% and hydropower at 39%. Hydropower accounts for the large percentage of the capacity and is, therefore, susceptible to changes in weather leading to outages at 33%. On geothermal power, Kenya is the world’s eighth largest producer of geothermal energy and has a great potential for further production (Maina, 2016). Africa’s largest wind power project is the Kenya Lake Turkana Wind Farm, which has a generation capacity of 310MW. Coal is the next energy source as there is the exploitation of a 400million tons coal mine, which has been discovered in Mui Basin. The basin is expected to provide additional 960MW. However, the project has been engulfed in wrangles between the local authorities and the central government after the mining rights were given to a Chinese consortium in 2015. The following is the energy mix for Kenya.

Figure 4: Kenya’s energy mix. Obtained from KPLC, 2016.

Kenya’s Energy Demand and Supply Outlook

The vision 2020 program is a blueprint, which has been set forth by the government of Kenya, endeavors to make it only an industrialized country but also a middle-income nation. For the over 43 million people in Kenya, there is only 2150MW of generation (Maina, 2016). However, due to projected surge in energy demands, the country expected to increase its generation capacity to 23,000MW by 2030. On demand, the capital city (Nairobi) is the largest consumer of energy as it houses a large population compared to other counties in the country. Notably, according to the Kenya Power and Lighting Company (KPLC), Nairobi city and its environs contribute to 70% of total electricity sales. The following is a graphical representation of the power consumption in Kenya by region.

Figure 5: Electricity consumption in Kenya. Obtained from (KPLC, 2016)

Intercountry Challenges

The politics of the East African region have affected the beginning of oil exploration in the areas it has been discovered in Kenya. Kenya had collaborated with the other East African countries such as Uganda, Ethiopia, and South Sudan for the construction of port and transport corridor known as the Lamu Port and South Sudan Ethiopia Transport (LAPSET), which required each of the countries to construct its part of the infrastructure. As such, Kenya planned to transport its oil proceeds to the port of Mombasa via the LAPSSET project (Suberu et al., 2013). However, the recent withdrawal of Uganda from the transport corridor and joining hands with Tanzania impeded the efforts of Kenya to be a major oil exporter in the region. There have been issues on which is the cheapest and shortest route between the one from the port of Mombasa to Uganda and that running from the Tanzanian coast to Uganda (Lund, 2015). The withdrawal of Uganda was due to the cost of construction of the port and transport corridor as well as security issues especially in the North-Eastern part of the country where the oil pipeline was to run through before crossing into Uganda (Ronoh et al., 2015). The presence of oil in Uganda, South Sudan as well as the Ogaden basin in Ethiopia will present various challenges regarding the oil prices for Kenya by 2030.

In-Depth Analysis

Political Stability

The political climate affects the willingness of oil companies to commit their resources in the exploration, extraction, and transportation of petroleum resources. The growth of the influence of Kenya in the energy sector started after 2007/2008 when the country experienced post-election violence (Patey, 2014). Subsequently, a grand coalition government was formed between the incumbent and the opposition leader. Later in 2012, oil was discovered in commercial amounts in the northwestern part of the country, more specifically, in the Lokichar Basin in Turkana County. Additionally, there was the discovery of large quantities of coal in Mui Basin located in Mwingi Town in Kitui County (Neumann, 2015). Subsequently, the government set out to start geothermal generation projects in Naivasha to ensure that it meets the increasing demand for power. The Kenyan government through the Energy Regulatory Commission (ERC) enacted the Energy Act, which guarantees that there is a proper procedure for the exploration of petroleum resources. These actions were based on the political goodwill of the country. However, the sale of the petroleum products from Lokichar cannot be sold before the enactment of the Petroleum Bill 2017.

The political climate has had various effects on the energy sector in Kenya. Notably, Kenya has been, for various decades, the largest economy in the region. However, the country has faced competition from Tanzania, which perceives Kenya as its competitor. As a result, there have been various decisions by the neighbor countries, which have served to affect Kenya’s projects in the energy sector (Lund, 2015). One of those was the decision of the Republic of Uganda to withdrawal support for the oil pipeline project that it was to construct with Kenya jointly. Specifically, the country, after an economic assessment, decided to collaborate with Tanzania and thereby dumbed Kenya in the last minute (Keho, 2016). As such, the pipeline project remained in limbo considering that its economic viability had been adversely affected by the withdrawal of Uganda. The choice of Tanzania shows the political issues which have been in the energy sector. In early 2017, the president of Tanzania announced that he was going to cut the amount of energy imported that the country was getting from Kenya. From the preceding, by 2030, Kenya shall be one of the leading producers of oil considering the recent discoveries made in Turkana. However, with the elections in Kenya happening in August 2017, it is likely that political stability will be affected which could further affect the oil exploration process (Neumann, 2015). The current political stability has seen Kenya sign a nuclear power deal with South Korea for the use of nuclear as a source of energy. By 2030, there will be more diversification of energy sources, which will lead to lower energy prices.

Wars and Acts of Terrorism/ Sabotage

The location of Kenya makes her a target for terrorist attacks from the neighboring Somalia by the al-Shabaab terrorist group. Notably, Turkana is located in the North-Western part of the country, which neighbors the northeastern part, which has seen many terrorist attacks in the recent past (Dogan, 2014). One of the most devastating attacks was the Garissa University attack in 2015, which claimed the lives of more than 100 students. The terrorist organization has not only claimed the lives of many individuals but also destroyed property in the northeastern parts of the country. For instance, various communication masts for the Safaricom Communication Company have been destroyed. The effects of these acts of the terrorist groups cannot be underestimated considering the damages to property as well loss of lives that it has occasioned. By 2030, the acts of terror are expected to increase if the influence of the Al-Shabaab terrorist organization is not subdued. Kenya has also experienced post-election violence, which has had tremendous effects on the economic activities in the country. Specifically, according to Patey (2014), after the 2007/2008 post-election violence, more than 1000 lives were lost while business operations were affected. The 2017 election is heated up, and if measures are not taken, violence is likely to break.

The effects of acts of war and terrorism are the sabotage of the pipelines and hence making the oil transportation process difficult. Specifically, Lund (2015) posit that the security in the northeastern and northwestern parts of the country has not been guaranteed. Currently, the insecurity problem in the West Pokot part of Rift Valley province in Kenya has led to various forms of instabilities (Agade, 2017). Insecurity has led to economic sabotage whereby some of the houses and government projects have been torched. The location of the oil exploration basins in the densely population northwestern parts of Kenya has led to the absence of police security which is a huge threat. However, the various security measures which have been put in place by the government including military operations in such areas means that the oil explorers will be secure. Additionally, according to Ondraczek (2013), the military operations dubbed African Mission in Somalia (AMISOM) ensures that the security will be beefed up in such areas. By 2030, it is expected that the safety of the area will have improved based on the projected population increase of the country to 65.4 million. As such, the population density will increase in the northern parts of the country, which will ensure improved security (Kumar and Kumar, 2013). However, if measures are not taken, the al-Shabaab group may have much influence by 2030 hence hampering the oil exploration processes.

Limitations of the Report

This report provides different insights into the energy outlook of the world and the sub-Saharan area in Africa as well as the Republic of Kenya. Despite the volumes of information that it offers about the future of oil and gas in Kenya, it has various limitations. One of the limitations is a lack of enough data and statistics about energy usage in Kenya (Christopherson, 2016). Specifically, data for the consumption of electricity in the country is evident whereas the statistics for the use of other energy sources is not updated. Additionally, the available data cannot be used to provide accurate predictions for the future. As it is the first time that Kenya is exploring oil of a commercial nature, it is hard to establish the various challenges involved as well as the geopolitical factors at play (Johannes, Zulu, and Kalipeni, 2015). Most information recorded is on the entire sub-Saharan area, and the information on Kenya is limited. However, despite those limitations, the report offers a critical analysis of the future of oil and gas not just for the Kenyan case but also for the African region and the world.

Conclusion

This report aimed at discussing the future of oil and gas by examining the energy outlook for Kenya between 2015 and 2030. Based on the statistics and information explored, there are various projects for the future coupled with different uncertainties. Kenya plays a significant role in the energy sector in the East African region. Specifically, it has discovered a commercially viable oil reserve in the Lokichar Basin located in Turkana Country in the northwestern part of Kenya. Additionally, coal has been found in the Mui Basin located in Kitui County in Eastern Kenya. The primary sources of energy are electricity, geothermal, wind power, solar and coal. The country does not currently have any oil and gas exports. However, by 2030 based on the coal and petroleum discoveries, the state is expected to be a major exporter of power. Based on the limited data for Kenya, the projection for energy demand and supply by 2030 is uncertain. However, globally, oil and gas production is likely to increase. The political stability of the region ensures that investors in the oil and gas industry are attracted; however, the threat of terrorism and sabotage of oil pipelines is likely to be a concern in the future. The future of oil and gas in Kenya is depended on how she will respond to security and terror problems as well as continued political stability.

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