Chinese Firm Counters India's Ksh 365B Deal to Purchase Turkana Oil

A photo collage of a petrol station attendant using a fuel pump (right) and a fuel ship docked at the Port of Mombasa.
A photo collage of a petrol station attendant using a fuel pump (right) and a fuel ship docked at the Port of Mombasa.
Photo
KPA

Indian government's race to acquire a 50 per cent stake in Tullow Oil, a British multinational oil and gas exploration company, in the Turkana oil project, is in peril after a Chinese energy giant, Sinopec, entered the fray.

IndiaTimes reported that Sinopec - China's largest producer of oil and petrochemical products - sent representatives to Tullow Oil to express interest in the project.

The Chinese firm could capitalise on the months of delay in the negotiations between two state-backed Indian companies seeking to finalise the deal estimated to cost Ksh365 billion (3 billion US dollars).

Indian Oil Corp, the country's top refiner, and ONGC (Oil and Natural Gas Corporation) Videsh, India's second-largest oil and gas firm, are seeking to outdo each other in the quest for Kenya's oil. 

An aerial view of ongoing oil exploration at the South Lokichar Basin.
An aerial view of ongoing oil exploration at the South Lokichar Basin.
Photo
NS Energy

Tullow Oil Takes Over

Further, Tullow acquired complete control of the Turkana oil project after its venture partners, Africa Oil Corp and Total Energies, exited.

Initially, the two partners had a 25 per cent stake in the South Lokichar basin. 

Following the move, Tullow affirmed it would continue to work with the government and engage strategic partners who have expressed an interest in the project based on its economic viability.

Origin of the Tullow Oil Deal

In 2014, the Indian government considered the world's fourth-largest oil consumer, assigned state oil firms to acquire assets overseas to improve the security of its energy supplies. According to India's oil ministry data, the country imports about 80 per cent of crude oil.

ONGC Videsh expressed interest in purchasing Tullow's stake in a bid to get 400,000 barrels of crude oil per day from overseas assets by 2018. At the time, the State-backed firm acquired 167,000 barrels from overseas holdings by October 2014. 

The Indian government approved the move but sought for the firm to incorporate Indian Oil Corp as it had expressed interest in participating in the deal.

For months, the two Indian companies negotiated for a stake in the project, delaying the deal. Further, financial strains resulting from losses in fuel sales drove Indian Oil Corp to be cautious about moving forward with the multi-billion deal.

In 2022, representatives drawn from both Indian companies met with Tullow and officials from the Ministry of Energy in a bid to refine the deal. According to Tullow, the meeting was positive as the parties agreed to hold further discussions.

Tullow Oil's Exploration

Kenya discovered oil in the Turkana project in March 2012 but has yet to commercialise crude oil production to fuel economic growth fully.

Oil exploration began in 2019 when the Kenyan government issued Tullow Oil with the license to produce 100,000 barrels daily.

Further, the same year, former President Uhuru Kenyatta announced Kenya's entry into the oil export market - to capitalise and earn an average of Ksh1.2 billion from selling 22,000 barrels of crude oil.

This piled pressure on Tullow to develop the Turkana oil well and yield an average of 120,000 barrels daily. However, this was curtailed after the company faced financial constraints and setbacks in securing water rights and acquiring land for pipeline developments.

A photo collage of President William Ruto speaking during the launch of a project in Nyandarua County on April 6. 2023 (left) and a petrol attendant about to refill a car at a petrol station on March 24, 2022 (right).
A photo collage of President William Ruto speaking during the launch of a project in Nyandarua County on April 6. 2023 (left) and a petrol attendant about to refill a car at a petrol station on March 24, 2022 (right).
Photo
PCS / ma3Route

In 2022, the British gas firm announced plans to submit a new field development plan (FDP) to solve the financial crisis. The FDP included seeking land to develop a pipeline and oil processing facility and compensation for 516 landowners in Turkana County.

Tullow expects to yield an average of 585 million barrels of oil over the entire field in its plan. The estimates jumped from 433 million after an assessment from the British petroleum consulting firm Gaffney Cline Associates (GCA).

According to Statista, Kenya imports 3,000 barrels daily, and hence the Turkana Oil project has been touted as the cure to the country's fuel crisis.

Ruto Oil Deal and High Fuel Prices

National Oil Corporation (NOC) chairman Kiraitu Murungi announced on May 2, 2023, that Kenyans would soon enjoy lower fuel prices after the country was set to join the Organisation of the Petroleum Exporting Countries (OPEC) and other oil-producing nations.

Murungi emphasised that the country needed to begin drilling its oil to curb the external pressures affecting fuel prices. This involved dollar volatility and global conflicts that always affected energy security in Kenya.

Kenya will, however, know its fate on whether it will join the League of Oil Exporters after the Energy and Petroleum Regulatory Authority (EPRA) will review the oil reserves by June 2023.

The South-Lokichar basin, located in Turkana, has an oil reserve of up to 450 million barrels - part of which the government has 22.5 per cent of the oil share.

Currently, Super Petrol, Diesel and Kerosene prices increased by Ksh3.40 per litre, Ksh6.40 per litre and Ksh15.19 per litre, respectively, in May 2023. 

This led to petrol retailing at Ksh182.70, Diesel increased to Ksh168.40, and Kerosene rose to Ksh161.13.