Kenya’s Great Rift Valley, a 450- mile long volcanic trench ripped open by shifting tectonic plates, is known as the cradle of mankind for the million-year- old remains of human forebears discovered there.
Oil drillers say the area also holds a string of fields that could make East Africa’s largest economy a major energy producer. The U.K.’s Tullow Oil Plc (TLW) and Canada’s Africa Oil Corp (AOI). found crude at two wells last year and now plan as many as 11 more test wells in 2013. The valley could yield 10 billion barrels, Tullow estimates, enough to supply Kenya for three centuries or the U.S. for about 18 months.
The discovery puts Kenya at the center of East Africa’s emerging oil industry. Uganda will soon start to produce the oil it discovered starting in 2006. Tullow and Africa Oil are drilling in Ethiopia. And South Sudan, the world’s newest nation and an established oil producer, is looking for new export routes that would bypass the country it broke away from. All this oil would probably be piped to Kenya’s coast.
With the continent’s oil industry centered on Nigeria in West Africa, East Africa has been largely overlooked. Of the more than 30,000 wells drilled in Africa, fewer than 500 were in East Africa, according to Afren Plc (AFR), an oil explorer active in the region.
“There was a giant under-explored hole on the map,” Africa Oil Chief Executive Officer Keith Hill said in an interview in Nairobi. “Now the world has woken up to East Africa. I’ve never seen a basin of this magnitude.”
Kenya imports all its oil, so securing a domestic energy supply and becoming a hub for area producers would boost an economy forecast to grow 6 percent this year. Officials in Nairobi are proposing a $5 billion plan to build a network of pipelines to a terminal on Kenya’s Indian Ocean coast. Tankers would then ship the oil to customers in China, India, and other Asian countries.
“The interest of this country is to fast-track this process,” said Martin Heya, commissioner for petroleum.
Tullow and partners Total SA (FP) and Cnooc Ltd (883). are examining plans to build a pipeline from their 1-billion-barrel fields in Lake Albert in Uganda for export through Kenya. The Democratic Republic of Congo is also reviewing plans to join the eastbound pipeline from its part of Lake Albert.
“Certainly Kenya will become a regional oil sector hub in the next 10 to 15 years,” John Small, chief executive officer of the Eastern Africa Association, said in a phone interview. “It’s a huge task.”
Tullow and Africa Oil are drilling the Sabisa well in Ethiopia’s part of the Great Rift Valley. Like Kenya, the country has no history of oil production. It has already discussed pipeline projects with its southern neighbor, said Ethiopian Minister of Mines Sinknesh Ejigu.
“We can work together, we can go together,” Ejigu said in Addis Ababa. “Integrating economies, benefiting together is the agenda we are promoting.”
Production in Kenya itself remains three years off. The Rift Valley fields are in a relatively underpopulated part of the country. To move a rig to the Great Rift Valley site takes 230 individual truckloads of equipment driving on dirt roads, Africa Oil said. Supplies must be flown in from Nairobi, two hours away.
Workers are guarded by Kalashnikov-carrying policemen in an area where cattle rustling can escalate into gun battles between tribes.
“We had to stop the seismic crew for a day,” said Africa Oil Vice President James Phillips. “They were shooting at each other, not at us, but the guys on the seismic crew had to stop and lay down on the ground. There were a few bullets flying.”
On a national level, this month’s presidential election in Kenya appears to have passed without the violence that left 1,100 dead in 2007’s voting and would have threatened investment. While outgoing Prime Minister Raila Odinga plans to challenge Uhuru Kenyatta’s victory in court, analysts don’t expect widespread disturbances.
Outbreaks of violence are “a very, very low risk,” Clare Allenson, an analyst at Eurasia Group, said in a phone interview.
The Nairobi Securities Exchange’s All-Share Index (NSEASI) has risen about 22 percent this year as investors welcome the peaceful election. Kenya can offer a qualified local workforce and manufacturing capacity, which can partly meet demand from the oil industry, said Martin Mbogo, Tullow’s manager for Kenya, where its Ngamia well struck first oil last March.
“Kenya is a big driver, it’s really a financial engine,” Mbogo said in an interview in Nairobi.
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