Oil firms boost storage capacity with eyes on higher profits

Vivo managing director Polycarp Igathe (right) and group chief executive Christian Chammas (second right) tour the company’s new storage tanks in Mombasa last week. PHOTO | FILE 

By ALLAN ODHIAMBO

In Summary

• Last week, oil marketer Vivo Energy unveiled a 14 million litres extra storage capacity at its depot in Shimanzi, Mombasa as it set its sight on further expansion of its retail network in Kenya.

Oil firms are caught in a race to expand their petroleum product storage capacities amid growing consumer demand and profit pressures.

At least 144 million litres of active storage capacity is expected in market within four months, raising hope for more reliable consumer supplies and improved profit prospects for marketers.

Last week, oil marketer Vivo Energy unveiled a 14 million litres extra storage capacity at its depot in Shimanzi, Mombasa as it set its sight on further expansion of its retail network in Kenya.

The Kenya Pipeline Company (KPC) is too targeting to increase its product holding capacity through planned leases of existing depots in Mombasa and Nairobi with a total storage capacity of 130 million litres by February 2016.

“We intent to add about 100 million litres in Mombasa and about 30 million litres in Nairobi in our new expansion plans,” Jason Nyantino, corporate communications manager told Shipping & Logistics.

In fragmented markets such as East Africa’s, bulk supplies hold the key to profitability. Investors and marketers are currently deprived of reliable storage to suit their demands to service East Africa and its hinterland.

Vivo Energy has built a new fuel storage tank and upgraded another at its depot in Shimanzi, pushing the firm’s overall holding capacity of petrol to 22 million litres.

The two tanks have a capacity to hold 14 million litres of petrol. Extra storage is critical to oil marketers in Kenya and the region because of thin profit margins from sales.

“The opening of these tanks will increase the company’s petrol storage to 22 million litres. This will also ensures a ready supply, needed as a result of significant retail business,” the firm said. “The company is also increasing its diesel capacity and tank construction is underway.”

Over the past two years Vivo Energy has increased the number of Shell service stations in Kenya by 31 per cent, from 121 to 158 outlets — piling pressure for additional product storage capacity.

Vivo Energy Group chief executive, Christian Chammas said the company targeted further expansion and upgrade of its retail network in Kenya. “We are investing around $300 million (Sh30.4 billion) over the next three years to build new service stations and refurbish existing ones,” he said when he unveiled the expanded petroleum storage capacity in Shimanzi.

Monthly petrol consumption at Shell outlets across the country has grown from 11 million litres in November 2012 to about to 20.8 million as at September this year.

KPC plans to lease operational oil storage facilities from private investors in Nairobi and Mombasa in a bid to improve product distribution and supply.

“The terminal must be fit for purpose for immediate use,” the company said as it called for bids by interested terminal owners.

KPC said the leased facility in Nairobi would ensure adequate and reliable supply of refined petroleum products in its market, enhancing storage of refined petroleum products and bolstering operational flexibility and service delivery to oil marketing companies (OMCs) by converting the leased terminal into a common user facility.

The company said the leased terminal in Mombasa would help in reduction of demurrage cost to the country and the region arising reduced waiting time by ships delivering imports to Mombasa port.

“The leased facility in Mombasa will be beneficial in increasing throughput in KPC system by availing extra entitlement for OMCs to service their customers thus increased revenue through the Kipevu Oil terminal handling and mainline tariffs and providing extra storage and increase in cover days for security of supply of products especially PMS which has constrained capacity in KOSF (Kipevu Oil Storage Facility).

Demand for petroleum products in Kenya has been growing steadily over the years. According to the Economic Survey 2015, the total quantity of petroleum products imported increased by 11.7 per cent to 4.4 billion tonnes last year while the total domestic demand for petroleum products increased by 5.3 per cent to 3.9 billion tonnes in 2014.

The Energy and Petroleum ministry in September last year took over the management of a private oil terminal in Kipevu, Mombasa, raising hopes of lower storage penalties for oil marketers, which will ultimately lower product prices.

The KPC now runs the facility owned by international storage logistics firm VTTI under a five-year lease deal. The newly leased facility provides an alternative to the strained national storage tanks at the State-owned Kipevu Oil Storage Facility, which have been blamed for high demurrage charges.

Oil marketers have been paying penalties for delays occasioned by tankers failing to offload due to a lack of adequate storage.
VTTI bought out the 111-million litre facility as an incomplete asset from the troubled Triton Limited. But oil majors had been hesitant to use it since it is majority owned by Vitol, which has significant stake in Kenya Shell