A budget decision by the National Treasury has cast fresh doubt on Kenya’s long-awaited plans to begin commercial oil production before the end of 2026.
The government has withdrawn Ksh 9.84 billion that had been allocated for development projects under the State Department for Petroleum, a move that could slow progress on the South Lokichar Basin oil project in Turkana. The decision has triggered concern among industry players and government officials who fear it could delay activities needed to bring Kenya’s first commercial oil to market.
In a statement shared on Monday, financial and economic platform Fintek warned that the budget cuts could undermine years of work aimed at turning Kenya into an oil-producing nation. The organisation noted that several major petroleum projects now face uncertainty following the removal of development funding.
The revised budget, which was approved by the National Assembly last Thursday, leaves the State Department for Petroleum with Sh22.04 billion for recurrent expenditure only. The entire development allocation that was initially included in the budget estimates was scrapped.
At the centre of the concerns is the South Lokichar Basin project, where commercial oil production had been expected to begin later this year. The project has been a key pillar of Kenya’s energy ambitions since significant oil discoveries were made in Turkana more than a decade ago.
Acting Petroleum Principal Secretary Mohamed Birik said the funding cuts would affect critical work required before commercial production can commence. According to Birik, the South Lokichar project had been allocated Sh5.52 billion, making it one of the largest projects affected by the decision.
“The withdrawal will hamper the development and commercialisation of the discovered oil resources,” he said.
Birik explained that the funds were intended to support land surveys, compensation of affected landowners, environmental and social impact assessments, community engagement programmes and local content initiatives. These activities are considered essential for the successful rollout of the project and for maintaining support from communities living near the oil fields.
The budget cuts extend beyond oil production. Funding for the government’s liquefied petroleum gas (LPG) expansion programme has also been affected. Plans to improve LPG distribution across the country had been allocated Sh991 million, while another Sh370 million had been set aside for clean cooking gas infrastructure in boarding schools.
The reduction comes at a time when the government is pushing to increase the use of clean cooking energy. Under the current plan, Kenya hopes to raise LPG consumption from 7.5 kilograms to 15 kilograms per person and increase national LPG penetration from 24 per cent to 70 per cent by 2028.
The latest setback also threatens other petroleum-related projects, including exploration activities in Block T11 and plans for the proposed Lokichar-Lamu crude oil pipeline, which is expected to play a critical role in transporting crude oil from Turkana to the coast for export.
Only months ago, government officials were projecting confidence that Kenya would finally achieve commercial oil production by December 2026. Gulf Energy, which is leading the development of Turkana oil Blocks T6 and T7, had projected initial production of about 20,000 barrels per day between 2026 and 2032. Production was then expected to increase to 50,000 barrels per day in the following years.
The South Lokichar project has been viewed as a potential game-changer for Kenya’s economy, with expectations that it could attract billions of shillings in investment, create jobs and generate revenue for both the national government and local communities.
However, with development funding now removed from the budget, the future timeline of the project has become less certain. While the government has not abandoned its oil ambitions, stakeholders are now waiting to see whether alternative financing arrangements can be secured to keep Kenya’s first commercial oil project on course.
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