A bridge too far?

Even as Kenya warms up to its first ever oil ex­port, it is still too early to cel­e­brate for there is much to be done

The East African - - FRONT PAGE - By Vic­tor Kiprop and Kennedy Senelwa

Kenya will fi­nally be­gin its ea≥ly oil expo≥t scheme us­ing spe­cial t≥ucks

Kenya is set to be­gin trans­port­ing the first batch of its Crude oil from the Lo­kichar oil­fields — about 550km north­west of the cap­i­tal Nairobi — to its stor­age fa­cil­i­ties at the coastal city of Mom­basa in readi­ness for ex­port, mov­ing closer to its dream of be­com­ing a ma­jor oil pro­ducer.

Be­gin­ning this week, some 2,000 bar­rels of oil will be trucked from Lo­kichar to Changamwe daily, mark­ing the be­gin­ning of the Early Oil Pi­lot Scheme (EOPS), which was sup­posed to kick off in June 2017, but was de­layed mainly by dis­agree­ments over how rev­enues from the ex­ports would be shared.

Kenya struck oil in the Lo­kichar Basin in 2012, with total re­cov­er­able re­serves es­ti­mated at 750 mil­lion bar­rels. Pres­i­dent Uhuru Keny­atta is ex­pected to flag off the first trucks on the 992km Loc­kichar–ki­tale-el­doret-nairobi-mom­basa jour­ney.

The Min­istry of Petroleum said on Wed­nes­day that it plans to ac­cu­mu­late about 400,000 bar­rels in Changamwe by De­cem­ber be­fore it be­gins small-scale ex­ports which are ex­pected to pave the way for full field pro­duc­tion by 2021.

“Once we have ac­cu­mu­lated 400,000 bar­rels of oil, we will then be­gin a ten­der­ing process and sell to the bid­der with the best price,” said Petroleum Prin­ci­pal Sec­re­tary Anthony Ka­mau.

Stock­pil­ing bar­rels

Mr Macharia has said that the oil will be sold to in­ter­na­tional buy­ers through com­pet­i­tive bid­ding. Re­fin­ing firms and in­ter­na­tional traders will be in­vited to bid once the cargo is stock­piled at Kenya Petroleum Re­finer­ies in Mom­basa.

Mr Ka­mau said in­ter­na­tional ten­der for sub­mis­sion of bids is ex­pected to be floated be­fore the end of 2018 and crude will be sold to a bid­der who of­fers Kenya the best price.

“Crude is ex­pected to be dis­counted at $2 a bar­rel of pre­vail­ing price. The EOPS is not a com­mer­cial busi­ness ven­ture but aims to es­tab­lish a mar­ket be­fore com­mer­cial crude pro­duc­tion in 2022,” he said.

The Eastafrican, how­ever, un­der­stands that it could take close to a year be­fore the first batch of oil leaves the coun­try for the in­ter­na­tional mar­ket, as it will take at least eight months to haul the 400,000 bar­rels to Changamwe. Cur­rently, Kenya has 80,000 bar­rels of crude stored in Lo­kichar await­ing trans­porta­tion and is adding be­tween 400 and 500 bar­rels per day.

The trans­porta­tion will in­volve at least 110 spe­cialised trucks with a ca­pac­ity of 150 bar­rels each, mak­ing the 992km jour­ney that could take over one week for a round trip.

Ac­cord­ing to the Petroleum Min­istry, Kenya’s pro­duc­tion ca­pac­ity is ex­pected to con­tinue grow­ing to about 2,000 bar­rels per day by 2019 and top 80,000 bar­rels once the con­struc­tion of the 892km pipeline link­ing the Lo­kichar oil­fields and the port of Lamu is com­pleted.

Dis­cus­sions on the con­struc­tion and fi­nanc­ing of the es­ti­mated $1.1 bil­lion pipeline, which is be­ing de­signed by Lon­don-listed Wood Group Plc, are on­go­ing, ac­cord­ing to the min­istry, ahead of the ex­pected com­mer­cial pro­duc­tion.

Rev­enue shar­ing

The min­istry has de­fended the choice of road trans­port for the EOPS stage, al­lay­ing fears that the Kainuk Bridge on the Turk­wel River on the Kapen­guria-kainuk road, which will be used to truck the oil, will not with­stand the weight of the tank­tain­ers.

“As far as we are con­cerned, the road is mo­torable, and ren­o­va­tion and up­grad­ing works on the bridge will be com­pleted by April next year. At the mo­ment, we are not us­ing the bridge but a ford we have con­structed,” Mr Ka­mau said.

The drift can be risky dur­ing the rainy sea­son due to high wa­ter lev­els, al­though the Kenya Na­tional High­ways Author­ity is sta­bil­is­ing the riverbed with con­crete.

Kenya was to ex­port its first oil in 2017, but dis­putes emerged be­tween the na­tional gov­ern­ment, the county gov­ern­ment of Turkana and the lo­cal com­mu­nity over how pro­ceeds from the com­mod­ity would be shared.

“We now have an un­der­stand­ing that can put Kenya in the league of oil ex­port­ing coun­tries,” said Pres­i­dent Keny­atta re­cently af­ter reach­ing an agree­ment that raised the county gov­ern­ment’s share of the oil rev­enue to 20 per cent and cut the na­tional gov­ern­ment’s to 75 per cent, while the lo­cal com­mu­nity re­tained 5 per cent.

How­ever, as Kenya gears up to its first ever oil ex­ports, it is still too early to cel­e­brate.

“The is­sues of price, break-even point, and rev­enue shar­ing are not rel­e­vant at this point. This is no com­mer­cial ven­ture,” Mr Ka­mau cau­tioned.

In 2016, Kenya’s En­ergy Min­istry, which han­dled oil, said Kenya would make be­tween $34 and $50 per bar­rel in prof­its from the ex­port, which would place its breakeven level above oil-rich economies such as Saudi Ara­bia at $23.50, but lower than Nige­ria’s profit level of $31.60, ac­cord­ing to data from Nor­way-based con­sul­tancy firm Rys­tad En­ergy.

The Kenyan gov­ern­ment has also remained tightlipped on the rev­enue shar­ing agree­ments be­tween it­self and Tul­low Oil, which says it has spent nearly $2 bil­lion — re­cov­er­able from pro­ceeds of oil sales — in ex­plo­ration works in the Lo­kichar Basin since it started prospect­ing for oil back in 2010.

In Ghana, where Tul­low has op­er­a­tions, it has made its petroleum agree­ments with the gov­ern­ment and the rel­e­vant Deeds of As­sign­ment pub­lic on its web­site.

At the time of ex­port, the crude will be pumped from Changamwe to the Kipevu Oil Ter­mi­nal jetty for load­ing into sea tankers. The ter­mi­nal han­dles tankers with a ca­pac­ity of 80,000 tonnes.

Is­sues of price, breakeven point, and rev­enue shar­ing are not rel­e­vant at this point.” Anthony Ka­mau, Petroleum Prin­ci­pal Sec­re­tary

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