Abacus Wealth Management

The Oil Discovery Put into Perspective

Yesterday President Mwai Kibaki announced that oil had been discovered in Turkana. The company that carried out the oil exploration exercise, Tullow Oil Plc confirmed that it had discovered oil in one of its oil wells, the Ngamia-1 exploration well. The company announced that it had encountered in excess of 20 metres of net oil per day in its press release. This news was met with great excitement and jubilation by Kenyans. A Reuters report stated that it will take a while, in excess of three years, for Kenya becomes an oil producing country. Is this estimation accurate?

Brief study of other African countries

Nigeria is perhaps the most popular oil producer in Africa. It produces 2.458 million bbl/day (2010 est.) Commercially viable oil was discovered in 1956 by the British and it accounts for 98% of the country’s export earnings and more than 83% of government revenues. Nigeria has a total of 159 oil fields and 1481 wells in operation according to the Ministry of Petroleum Resources. The most productive region of the nation is the coastal Niger Delta Basin in the Niger Delta which encompasses 78 of the 159 oil fields.

It is well known that control of the land on which the oil fields are located has led to ethnic confrontations and civil war (between 1966 and 1970). The exploration and mining of the oil deposits has also led to environmental degradation due to the numerous oil spills and natural gas flares. The oil spills have destroyed vast mangrove landscapes while the natural gas flares have emitted poisonous gases such as nitrogen dioxide and butane into the atmosphere.

Uganda’s oil deposits were discovered in 2008 and although Ugandans were bubbling with excitement upon the announcement, 5 years since the discovery actual mining and export is yet to commence.  There are growing worries that the oil could be more of a curse that a gift. Uganda is considered, along with Kenya, as one of the most corrupt countries in Africa, the fear that the oil industry could be marred by bribes and underhanded deals.

There is also potential for conflict because Uganda’s oil deposits lie under forests and lakes lining the border with Congo.

What about Kenya?

A few Kenyans have been of the belief that should oil be discovered in Kenya, it will bring about conflict and strife that would make our country even more volatile than our political and tribal machinations make it.

Based on the brief study of the Nigerian and Ugandan cases above, we should consider the discovery of oil from the following perspectives: Commercial viability, possibility of corruption and lack of transparency in the “oil sector”, possibility of conflict between the communities in the greater Turkana region and the possible environmental degradation from the mining.

The Turkana region is known to harbour conflict between the Turkana people, the Sabiny and the Pokot. This conflict arises out of scarcity and competition over pasture and watering points and territorial/border disputes. This conflict could be magnified by the presence of oil deposits in the area as it is very possible that a dispute could arise as each community could believe that they are the main benefactors of this discovery.

Let’s all hope that after the celebration and excitement of this discovery dies down, the policy makers will consider steps to mitigate any dispute, corruption or conflict or environmental degradation that may arise once mining commences.

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