Kenya takes the lead in exporting oil from region
This week, Kenya takes the baby steps of crude oil export for East Africa when it begins to move the volumes that have been accumulated so far, to a holding facility at Mombasa port. Dubbed the Early Oil Pilot Scheme (EOPS), the development is both symbolic and practical.
It is symbolic because of the potential economic and political spinoffs and practical because it frees up space at the wells for the extended well testing phase. Even though the EOPS is starting a year off schedule, the government will come out of it as one that delivers on its promises to citizens.
Having struck oil six years after Uganda, beating its neighbour to market sends positive vibes to investors who are likely to look at Kenya as a country that means business. It also helps East Africa place stake a claim as a source for crude in the turbulent oil market.
Amid the euphoria however, there are several practical considerations, the least of which will be the need to manage expectations. An immediate challenge will be to explain the time lag between the oil leaving the fields and the money coming back, to members of host communities who may equate the flag-off to nearterm petrodollars.
The Ministry for Petroleum is projecting a six-month waiting period before enough crude is accumulated at the exit point for sale.
In more than one way therefore, East Africa’s oil programme will be a learning template for the oil industry. While Uganda’s export pipeline will be the longest heated pipeline in the world, the Kenya EOPS, moving crude in insulated trucks over nearly 1,000 kilometres on roads that were never designed for such a purpose, is cause for both excitement and caution.
There are simply so many unknowns and to some extent, Kenya and observers are embarking on a steep learning curve. Moving hundreds of trucks weekly over unpaved roads has implications for the wellbeing of neighbourhood communities, which needs to be taken into consideration.
In the absence of public disclosure over key aspects such as production sharing agreements, any deviation from what the public expect, based on whatever little information they glean from official and subsidiary sources, could be a source of division. It could also provide a veil for those who may have positioned themselves to make illegal gain from the export scheme.
For Uganda, which is still years away from commercial production, the Kenya EOPS will be of interest in two ways. The oil fields in the Albertine region have gone silent as stakeholders’ fast-track engineering designs. In the interim, there has been the question of what to do with the crude so far accumulated. The debate has hovered between offering it for power generation, and shipping it by rail to Mombasa. The power generation option is entangled in pricing of the crude to the power company while shipping it by rail calls for a significant investment in the old metre gauge line from Pakwach to Malaba.
Uganda will closely be watching the EOPS because it offers it, and any other country that finds itself with a stranded oil resource, an opportunity for benchmarking both the logistics and pricing. The good news about pricing though, is that the cost of finding Kenya’s oil and extracting it is relatively low.