Blow to Kenya as World Bank Commits to stop Financing Oil Exploration

The recent announcement by the World Bank to stop financing oil and gas projects in two years is likely to dampen Kenya’s growth prospects in the sector.

For a long time, the WorldBank has been supporting  the government’s Vision 2030 development strategy, which aims to accelerate sustainable growth, reduce inequality, and manage resource scarcity.

However, World Bank President Jim Yong Kim said the new move is aimed at helping combat climate change.

“Everyday, climate change becomes a more urgent economic, social, and existential threat to all countries and all people,” WBG president, Jim Yong Kim, said. This change in approach was to ensure “alignment of our support to countries to meet their Paris goals,” he added.

Speaking at the One Planet Summit in Paris on Wednesday Jim Yong Kim said the World Bank will cease financing exploration and extraction projects after 2019, except “in exceptional circumstances” for the poorest countries where there is a clear benefit in terms of energy access and the project fits within the countries’ Paris Agreement commitments.

At the Paris climate conference (COP21) in December 2015, 195 countries adopted the first-ever universal, legally binding global climate deal.

The agreement sets out a global action plan to put the world on track to avoid dangerous climate change by limiting global warming to well below 2°C.

What is Upstream Oil and Gas?

The petroleum industry is broadly divided into three segments namely: upstream (exploration and production), midstream (storage, refining and transportation) and downstream (supply and distribution).

The upstream segment primarily involves the processes of exploration, development and production of crude oil and natural gas. As there is no production in Kenya today, this segment is primarily involved in exploration.

The midstream segment involves processes around storage, refining and transportation of the crude oil into consumable oil and gas products. There is only one refinery in Kenya today which is the Kenya Petroleum Refineries Limited located in Mombasa.

The downstream segment involves the process by which refined products are made available to the consumers through supply and distribution e.g. at industries and petrol stations. There is a fairly well developed network of transport pipelines, storage and retail outlets in Kenya today with a multiplicity of players. Courtesy Rift energy Corp.

Some of the areas in which the Group has offered support to the oil industry in 2016 included putting $50m into funding oil exploration of the Africa Oil Corporation in the South Lokichar Basin in Kenya.

Tullow Oil started exploration work in South Lokichar Basin in 2011. In 2014, the World Bank approved a $50m loan to strengthen policy and law making efforts.

Last year, Tullow Oil and its Joint Venture Partners recommenced exploration drilling activities in four wells in the South Lokichar basin which resulted in an oil discovery at Erut-1.

Erut-1 was drilled 10km north of Etom-2 and is the most northerly oil discovery in the South Lokichar basin with a gross oil interval of 55m with 25m of net oil pay.

Early Oil Pilot Scheme (EOPS) is expected to commence early in 2018 which will involve movement of the crude oil produced at Lokichar by Tullow Oil using road to Mombasa and stocking it at the Kenya Petroleum Refineries Limited (KPRL).