How the Oil Pipeline in Kenya will Spur Economic Growth

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In 2012, oil was discovered in Kenya. If handled correctly, this can be excellent news. The oil pipeline might bring Kenya and its neighbouring countries to a brighter future. In this first part of the article, I will talk about the larger picture of economic growth that may be spurred by a new oil pipeline.

 

What’s Going On with East Africa’s Oil?

In 2012, oil was discovered in Kenya. This is potentially excellent news if the discovery is handled correctly. Kenya’s oil and accompanying infrastructure, to include a pipeline, may bring Kenya and its neighbours political and socio-economic benefits that lead to a brighter future. In this first part of this three-part article, I intend to talk about the larger picture of economic growth that may be spurred by a new oil pipeline.

South Sudan is unable to export oil properly because of the ongoing civil war. To export their oil, Uganda and Kenya agreed in mid-2015 to fund the Uganda-Kenya Crude Oil Pipeline (UKCOP) from Hoima, western Uganda, on the shores of Lake Albert to Lokichar, Kenya, and then across northern Kenya, terminating at the new port being built in Lamu.  However, Uganda is sending mixed signals and is looking at the possibility of building an alternative pipeline with Tanzania. That would run west of Lake Victoria and across northern Tanzania to the port of Tanga.

This pipeline would bypass Kenya completely, thereby partially calling into question the entire Lamu Port Southern Sudan-Ethiopia Transport (LAPSSET) Corridor project. It also leaves Kenya holding the bag when it comes to building its pipeline – something that may not be feasible, given Kenya’s currently unproven oil reserves.

Uganda is not wrong to look at other options to export its oil. Kenya, Uganda, and Tanzania are naturally doing what states do: they are attempting to maximize their power.

However, they can either do so at the expense of each other or they can do so by functionally cooperating and sharing resource wealth and costs. Both options come with potential risks, challenges, and benefits.

 

Map showing the scope of the LAPSSET Project within Kenya - how will the oil pipeline be affected?

Map showing the scope of the LAPSSET Project within Kenya – how will the oil pipeline be affected?

 

The Potential Impact of the Pipeline for Kenyans and East Africa

If the UKCOP is constructed, it will benefit not only Kenya but the entire region. The UKCOP technical details on capacity indicate the design throughput is to be 300,000 barrels of crude oil per day, made up of 200,000 barrels from Uganda and 100,000 from Kenya. Current designs also allow for an additional 130,000 barrels per day from South Sudan under a high flow scenario. Assuming oil prices per barrel go up, the potential export revenue accrued by Kenya along with transit fees would be significant.  

Ideally, the projects (oil extraction, pipeline building, etc.) should be carried out in an environmentally-friendly way. This means keeping an eye on the possible disruptive effects a pipeline may have on the people and regions through which it crosses. The Kenyan government should also negotiate now rather than later with oil companies in regards to royalties, development assistance, taxation, and jobs. Better regulatory laws also need to be drafted and fully implemented.

When built, the UKCOP will necessarily increase people’s access in Northern Kenya to government services. It will enhance regional trade, potentially provide income and jobs. It might also help improve existing economic links and foster new ones and improve security in the long term.

The politics of oil extraction remain problematic. It is unclear exactly how much the communities surrounding the transport corridor and pipeline will benefit. Also, precisely where and how the roads, pipelines, and other infrastructure-related projects will be built, and whose land they will cross, still needs to be hammered out. The discovery of oil in the Turkana region of northeastern Kenya and its effects on local populations remain something of a wild card.  

Indeed, research has shown that a recent upsurge in violence between tribes in this region may be a direct result of the discovery of oil. This had led to attempts by individuals and groups to establish control of land surrounding potential oil fields and, therefore, a slice of the revenue associated in addition to that.  

 

Final Thoughts

I am cautiously optimistic that the UKCOP can be built, and Kenya will export its oil along with Uganda. I think this is a strong possibility because the UKCOP is just one facet of the massive LAPSSET Corridor project. It is also tied to Kenya’s Vision 2030, both of which have extensive government support.
But the future is uncertain for a number of reasons. Uganda’s serious flirtation with Tanzania to build a pipeline to Tanga would likely negatively impede the development of Kenya’s oil potential. Low oil prices, China’s economic slowdown, and the accompanying reticence by global and regional investors to explore further and develop Kenya’s oil reserves represent other serious obstacles.