"Prophets of Doom" Cloud Kenyan Oil Prospects

The top foreign policy chief for the European Union met this week in Nairobi with Kenyan leaders. The country is a key Western ally in ongoing efforts to bring stability to neighboring Somalia and has worked closely with the world's newest nation, South Sudan. Last week, an energy company working in frontier developments announced an oil well was spudded off the country's coast. Nairobi has reached out to its neighbors on energy matters, but given recent security concerns in Africa, Kenyan leaders need to ensure their house is in order if the country is to establish itself as a cornerstone for African energy security.

Catherine Ashton, European Union High Representative for Foreign Affairs and Security Policy, met with Kenyan leaders as part of her recent tour of African countries. She said European member states had an "important partnership" with Kenya on matters of regional security. Piracy in the region, she added, limits aid delivery to a region that depends in large part on foreign assistance.

"It affects trade for all of us and we need to find ways not only to prevent it but also to find a solution to it on the land and on the sea," she said in a statement.

Ashton said following her meetings with Prime Minister Raila Odinga that $2.8 million in European assistance would help support efforts to ensure peaceful elections in the country next year.

Last week, an oil company operating in Kenya announced that British explorer Tullow Oil spudded a well near the recent Ngamia-1 oil discovery off the country's coast. In March, the company said it encountered about 65 feet of net oil play in that exploration well. While considerably modest, Exploration Director Angus McCoss said discovering oil in its first well goes "beyond our expectations" for the region." Tullow, he added, was working closely with the Kenyan government to "unlock the oil potential in the region."

By May, however, Odinga was warning the "prophets of doom" may descend on the country as it looks ahead to 2013 elections. More than 1,200 people were killed in post-election violence in 2007 and another 600,000 were displaced.  A subsequent power-sharing arrangement with President Mwai Kibaki, he said, was a "marriage of convenience." There were still some leaders in the country who were clinging to past grievances, however, and Odinga warned the "ethnic drums" of war were sounding nearly a year ahead of the vote.

This month, Kenya and South Sudan signed an agreement to build a 1,300-mile crude oil pipeline spanning the two countries by next year. Conflict between both Sudanese governments means the south is still vulnerable to Sudan's whims in terms of exports. The $3 billion project could carry as much as 1 million barrels of crude oil if it moves ahead as planned.

Odinga's concerns about the "prophets of doom" have seemingly come to light, however. More than 60 people were killed last week during tribal clashes near Kenya's eastern coast. The apparent assassination of militant cleric Aboud Rogo Mohammed, meanwhile, sparked riots in Mombasa, where one person was hacked to death Monday. Tullow said it expects great things from Kenya, but Odinga's concerns from early this year may prove more of a reflection of reality than frontier developers expect.

By. Daniel J. Graeber of Oilprice.com