Wednesday, March 28, 2012

Kenya Joins The Big Oil Club

It looks like we can add Kenya to the list of the world's petro-states.

Kenya's President Mwai Kibaki made the announcement live Monday on Kenyan TV that a prospect well had struck a reservoir of crude oil in the northwestern part of the country.  The test well was drilled by Tullow Oil Plc, a Britsih company that specializes in oil prospecting and production in Africa.  Previously, Tullow discovered oil in neighboring Uganda, kickstarting the oil industry in that country.

It is still too early to determine the true value of the Kenyan oil reserve, more test wells will first need to be drilled.  But the early indications are positive – the oil drawn from the reserve appears to be of good quality, while Tullow said that the strike went “beyond their expectations”.  Kenyan officials, meanwhile, seemed to be incredibly optimistic during the press conference.  President Kibaki talked about Kenya becoming an oil exporter in three years, while Kenya's Energy Minister Kiraitu Murungi promised that: “we will make sure that the oil in Kenya is a blessing for the people of Kenya and not a curse.”

Murungi was referring there to the “resource curse” - the paradox that often strikes developing countries when a natural resource is discovered: rather than sparking the development of the nation as a whole, the resource often leads to the concentration of wealth in the hands of a few, widespread corruption, and rampant poverty for the masses.  We talked about the resource curse here recently when oil was discovered in the Puntland region of Somalia.

Kenya should be well-positioned to avoid the resource curse though.  The country has reached a fair level of development already and has a democratic government, albeit a somewhat flawed one, two factors that should help to ensure that any future oil revenues are distributed properly among Kenya's citizens.  A few weeks ago Kenya announced the construction of a multi-billion port facility outside the coastal city of Lamu, that will include an oil import/export terminal.  Originally this facility was meant to be at the end of a pipeline running from South Sudan, allowing the South Sudanese to export their oil without sending it north to export facilities in Sudan, since relations between the two nations are generally terrible.  But the facility at Lamu could also be used to export any Kenyan crude to eagerly-awaiting markets in Asia as well.
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