By NEVILLE OTUKI, notuki@kenationmedia.com
In Summary
Europe has become the main hunting ground for Kenya
as Nairobi races to find a buyer for the country’s crude oil, whose
export the government wants to begin next June.
Petroleum principal secretary Andrew Kamau said samples of
the crude from Turkana oil wells have been shipped to Europe and a
number of potential buyers have expressed interest based on its quality.
The revelation comes as a New Year’s gift for
President Uhuru Kenyatta’s government, which is pushing the early oil
exports plan despite the dire state of the global petroleum market.
“European refiners have been very positive because
our oil is low on sulphur, easier to refine and has passed the
environmental test,” said Mr Kamau, adding that “we are going to the
market by June.”
He, however, declined to disclose the specific
countries where the samples have been taken, arguing it would reveal the
identity of the potential buyers and pre-empt negotiations. Germany
has the highest refinery capacity in the EU at over two million barrels
per day, followed by Italy, Spain, France and Netherlands.
Crude is set to expand Kenya’s portfolio of exports to the EU, which is currently dominated by agricultural products.
Critics of Kenya’s early oil export plan have
pointed at low crude prices and distance from key markets as reasons why
Kenya should tread carefully with the plan.
The government hopes that oil exports will earn the
country the much-needed petrodollars and help stem the rising tide of
public debt that now stands at Sh3.7 trillion or half the gross domestic
product (GDP).
Kenya plans to export its first consignment of 2,000 barrels of oil per day beginning June to test the global oil market.
Kenya’s oil is classified as light and sweet,
meaning it has less sulfur. This type of oil is known to fetch higher
returns because dealers find it cost-friendly and easier to refine.
It is, however, waxy and sticky, making it necessary to heat it to flow through a pipeline, adding costs on the Kenyan side.
Nigeria’s oil – bonny light – is among the best in
the world while the Gulf oil is of low quality and is classified as
heavy and sour as it comes with lots of sulfur that has to be removed
before refining, raising processing costs.
The Kenyan government has more recently come under
heavy criticism for its rush to enter the saturated oil market, even
before crafting a strong business case for the trial.
Kenya’s total oil reserves are estimated at 750
million barrels – which Mr Kamau said are commercially viable at the
current price of $55 (Sh5,610) a barrel. (A barrel is equivalent to 159
litres.)
British oil firm Tullow struck Kenya’s first oil in
Turkana’s Lokichar basin in northwest Kenya in 2012, and followed it
with a string of other finds, that have put the country on the path to
becoming a producer of the black gold.
Tullow in August announced that it would start
producing 2,000 barrels of crude oil daily from March 2017 and have
stocks ready at Mombasa port for shipping in June.
The announcement was in line with State House’s
plan to have the oil transported by road from Turkana to Eldoret for
onward delivery by train to the Mombasa port – a distance of 1,089
kilometres.
Kenya plans to initially move between 2,000 and
4,000 barrels per day by trucks and trains in the absence of a pipeline,
but leaving room to expand to a peak of 10,000 barrels a day.
It is, however, not until 2022 that Kenya hopes to
embark on large-scale production with the construction of the
865-kilometre crude pipeline linking the Turkana oilfields to Lamu port
at a cost of Sh210 billion.
The pipeline will enable East Africa’s largest
economy to pump out at least 80,000 barrels a day. This is expected to
earn the country Sh163.8 billion per year, based on the current crude
prices of $55 a barrel. The Turkana oilfields have a lifespan of 25
years.
Kenya closed its defunct refinery in 2013, putting
the country on the sole path of exporting crude even as it continues to
import refined petroleum products.
Crude oil prices have remained volatile amid oversupply and cooling demand.
The Kenya Civil Society Platform on Oil and Gas
reckons that government’s rush to start exporting crude in the middle of
an election year could cost the economy more than Sh4 billion loss
given the vast distance to be covered by special trucks.
The lobby group insists that the State should construct a pipeline before exports.
Mr Kamau says that Kenya will make a profit from oil sales at $34 – $50 per barrel.
At $34, Kenya’s breakeven level is higher compared
with top producers like Saudi Arabia ($9), which pumps out 10 million
barrels a day and Venezuela ($23.50).
Nigeria’s profit level is $31.60, Angola ($35.40)
and the US ($36.20), according to Norway-based consultancy firm Rystad
Energy.
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