Tullow Oil’s discovery of big oil potential in the Ngamia-1 well in Kenya opens new vistas for Kenya’s economic development, including the mining sector. The potential could be twice as big as any of its other East African exploration wells.
Neighbouring South Sudan and Uganda will also be affected. South Sudan, Kenya and Ethiopia are already developing a pipeline, port and refinery at Lamu in Kenya to bypass the politically charged oil pipeline through Sudan.
If these oil finds are as big as expected, Uganda, where oil has been found in Lake Albert, may have to give way to Kenya when it comes to siting a refinery. Kenya has a small refinery at Mombasa which would need a major upgrade, or the one at Lamu could be made bigger.
Kenya would also need huge infrastructure development, which means contracting opportunities for SA’s workstarved construction groups, and there will be knock-on development for other sectors of the Kenyan economy.
Though Kenya has some attractive mineral deposits, they have remained largely unexplored until now. The main constraint has been a lack of legislation to regulate and encourage investment in mining, says Monica Gichuhi, CEO of the Kenya Chamber of Mines A draft mining and minerals bill is expected to go to cabinet later this year.
Peter Kinuthia, senior tax manager at Ernst & Young in Kenya, who has been involved in consultations on the new act, says it draws from best practice in SA, Australia, Canada and Tanzania. “It’s a winwin; we have the minerals but not the skills and want to attract investors with money and expertise.”
Kenya has well-established soda ash and fluorspar operations, but there are also new developments in mineral sands and gold. ASX-listed Base Resources is developing the Kwale Mineral Sands project while African Barrick Gold has agreed to acquire prospective gold assets from Aviva Corp, including a share in a joint venture with Lonmin
Kinuthia says Kenya’s power constraints are being addressed. There’s a potential 10000MW from geothermal sources, of which only 500MW is being exploited at present, and top-class thermal coal deposits are being developed in Kitui, where a parastatal firm has been tasked with building a power station nearby.
Elias Pungong, Ernst & Young partner: assurance African oil & gas sector, says the challenge is going to be how Kenya’s government manages its oil resources to ensure benefits for the whole country. But there will certainly be more work for everyone.
Says Gichuhi: “Oil and gas are extractive industries and these finds will increase interest in exploration and investment in the country.”
