Key issues that will shape oil sector in 2020

Globally, the year 2019 was defined by fairly stable oil prices in the $55-65 per barrel range sustained by oil over-supply across the world. This is despite supply/demand uncertainties caused by political hostilities in the Middle East; the US/China trade wars; and US economic sanctions on Iran and Venezuela.

Increased investments and production of US shale oil was mostly responsible for stabilised global oil supply and prices, and this is expected to continue into 2020. Shale oil has recently made the US the largest global oil producer ahead of Russia and Saudi Arabia. The recent oil production control agreement among OPEC and allied oil producers is unlikely to push prices beyond $70.

The unintended consequences of the US sanctions on Iran and the US/China trade conflicts is the apparent creation of new political and military re-alignments with Russia/China/Iran on one side and USA/Saudi Arabia on the other, and this development is likely to influence future global oil supply/demand/price dynamics. Further, the ongoing political instability in Iraq is likely to impact global oil supplies and prices in 2020 if early political solutions are not found.

The December 2019 Madrid climate change forum ended without major commitments that would significantly impact the oil industry. It is governments across the world that have continued with feeble energy and climate change policies, and this has tended to reduce climate change urgency by the oil industry.

The ongoing energy transition through renewable energy technologies (solar, wind, electric batteries) are already sufficiently factored by the oil industry in their climate change planning. In the 2020s, natural gas will continue to make gains in energy transition as it replaces higher carbon coal in the power generation and industrial energy sub-sectors.

In Kenya, the signing of the Petroleum Act 2019 has allowed new petroleum regulations to be written while updating the others and these activities are expected to continue into 2020. In the downstream sub-sector we have already seen increased regulatory activities in the LPG market, with similar enhancements expected in the other oil marketing segments and operations in 2020.

One area that was a disappointment in 2019 was failure by the government to commit investments for common user LPG import facilities, and there is doubt that this will happen in 2020 since the Kenya Pipeline Company (the project implementer) has recently rolled back new capital spending.

It would be wise if the government re-defines the LPG import project on a PPP model by a private investor with limited Kenya Petroleum Refinery Limited participation through land contribution. The project tariff structure through its life should be pre-agreed. It is an accepted fact that critical mass in LPG demand can only be achieved if LPG supply costs are reduced through Open Tender Import Systems enabled by common user import facilities.

Another major change we expect to witness in 2020 is the emergence of the Rubis brand which will replace the familiar Kenol, Kobil, and Gulf brands which have been acquired by Rubis which will now fight it out with Total and Shell/Vivo for market supremacy. The only regret is the exit of Gulf which was the only truly indigenous oil marketer with strong prospects for significant growth.

In the upstream petroleum, the most critical happening in 2020 will be the Final Investment Decisions (FID) by the three Turkana oil investors (Tullow, Total and Africa Oil) to commit capital for the 60-80,000 barrels per day oil production development and the oil export pipeline to Lamu.

If the FIDs happen in 2020, and the government secures land for the projects and process water for the crude oil wells, then three years of project construction will see the first oil export via Lamu in 2023, eleven years after oil discovery in 2012.

Lastly, I commemorate my 50 years in the oil industry. It was on January 20, 1970 when I joined Kenya Petroleum Refineries Ltd on a Shell Scholarship to study Chemical Engineering in the UK later that year. I had just finished my Form Six exams at Strathmore College in 1969. I also commemorate 10 years of uninterrupted contribution to this Business Daily column since 2010.