UPDATE 1-Kenya's first offshore gas strike uncommercial-minister

* Needed at least 3 trillion cubic feet for commercial viability

* No oil or gas found at well's lower depths - Tullow

* Operator Apache plans to drill second well end of 2013

By Drazen Jorgic

NAIROBI, Sept 11 (Reuters) - Kenya's first offshore gas discovery is encouraging but not large enough for commercial production, the east African country's energy minister said on Tuesday.

British exploration firm Tullow Oil and Australia's Pancontinental Oil & Gas announced on Monday their licence consortium's operator Apache Corp had found gas in the shallow target of offshore well Mbawa-1.

However, Tullow dashed hopes that oil might be found at the lower depths of the well on Tuesday, saying that no oil or gas had been found there and that the well would now be plugged and abandoned.

"The total amount of gas found is not sufficient in isolation to be commercial. We are however, encouraged that a reservoir containing hydrocarbons has been found," Kenya's Energy Minster Kiraitu Murungi told a news conference.

U.S. firm Apache, which has a 50 percent stake in the L8 licence block where Mbawa-1 is located, said on Tuesday the well would have needed to contain at least around 3 trillion cubic feet (85 billion cubic metres) of natural gas to make it worthwhile to install the infrastructure needed to produce, liquefy and distribute it.

Even so, the managing director of Apache Kenya, Tim Gilblom, said the find would encourage other companies holding licences in Kenya's other offshore blocks, including Anadarko and Britain's BG Group.

"The fact that we've proven that there is a hydrocarbon source below these basins gives them a higher chance of success, I would believe. So it's got to be good news for them," Gilblom told reporters.

Apache will spend the next year interpreting the data from Mbawa to determine if the gas was dry or the result of an oil formation. It will then drill a second well in the L8 block at the end of 2013.

"The key to remember is that we've proven that there is hydrocarbon source below Lamu Basin offshore Kenya and now all we have to do is further characterise it to figure out where the best next place to drill is," Gilblom said.

Tullow's exploration director Angus McCoss called the gas show "an encouraging start".

"Although the deeper targets at this location were unsuccessful these results will be vital in evaluating the still significant prospectivity of this block," McCoss said in a statement.

Tullow's shares fell 2 percent to 1,362 pence on Tuesday afternoon following the news that the well would be abandoned, but analysts at Oriel pointed to the wider significance of the gas find to the exploration campaign.

"Whilst results for the deeper target are disappointing, this is unlikely to be significant for Tullow with the prospect worth around 2.1 pence per share (risked)," they said.

Recent discoveries offshore Tanzania and Mozambique have already given rise to hopes that East Africa will become a major new supplier of gas to energy-hungry Asia and Tanzania now estimates it has 28.74 trillion cubic feet of recoverable gas reserves.

Earlier this year Tullow also announced Kenya's first onshore oil strike.