China, India top queue for Kenya’s oil exports

Visitors tour the site of the Ngamia-1 well in Turkana County, Kenya where the country struck oil. FILE | NATION MEDIA GROUP 

By BUSINESS DAILY

China and India have emerged as the main buyers of the Turkana crude oil that Kenya plans to export under a test programme beginning June, contrary to an earlier announcement that buyers had been found in Europe.

Petroleum Principal Secretary Andrew Kamau said the first sea tankers will dock at the Mombasa port in June to pick up the consignment transported from northern Kenya by road and stored at the Mariakani refinery tanks.

British oil explorer Tullow, the developer of the Turkana oilfields, has already pumped out and stored 60,000 barrels of crude in Lokichar in readiness for transportation to Mombasa.

Mr Kamau who had in February said a deal had been struck with European refiners to buy the Kenyan oil Tuesday made an about-turn and said no such agreement had been reached.

Shipment logistics

“About Europe, let’s just leave it until people have confirmed they will pick it up,” he said, adding that the buyers will incur the cost of shipment logistics.

Crude exports are set to open a new line of trade between Kenya and the two Asian powerhouses, which are the biggest suppliers of goods to Nairobi.

China’s expected intake of Kenyan crude adds to the list of extractives the Asian economic giant gets from the East African nation. So far the list includes titanium – which is used as an alloy to produce jet engines.

Official data shows that Beijing’s titanium imports from Kenya stood at $5.2 million (Sh5.3 billion) in the first 10 months of last year, accounting for over 80 per cent of the total imports from Nairobi.

The top seller

India, which boasts a number of refineries, had until last year been the top seller of petroleum to Kenya.

It was, however, overtaken by the United Arab Emirates (UAE), which is currently the biggest supplier of oil to Kenya.

Kenya’s crude oil is classified as light and sweet, meaning it has less sulphur (below 0.5 per cent) – an impurity that has to be removed before crude is refined into petroleum.

This type of oil is known to fetch higher prices in the global market because dealers find it easier to refine and it produces high-value products — petrol and diesel. It is, however, waxy and sticky, making it necessary to heat it during transportation.

Early production

Tullow Kenya told the Business Daily that it awarded the contract for early production facility (EPF) to UAE-based Al Mansoori Petroleum Services.

The contract involves oil-well site equipment, control rooms and civil works.

Kenya plans to move between 2,000 and 4,000 barrels of oil per day using trucks mounted with oil tank-tainers (150 barrels) in the absence of a pipeline.

Some 100 tank-tainers will be required, according to Tullow.

The global market

Kenya is moving towards exporting its first consignment of 2,000 barrels per day beginning June to test the receptivity of the oil in the global market, pending construction of a pipeline connecting the Turkana fields to the coast.

Nairobi enlisted the legal services of London-based law firm Simmons & Simmons to shepherd the export plan.

Nigeria’s oil — bonny light — is among the best in the world while 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.

South Sudan’s dar blend is also classified as being of poor quality, reaping lower returns, while the country’s Nile blend is top quality.

Refined products

Refurbishment of Kenya Petroleum Refineries Limited (KPRL) storage facilities is ongoing to handle the Turkana crude, pending shipment.

KPRL has 45 tanks, nearly half of which will store the crude from Turkana for shipment while the rest is for refined products.

Kenya expects to embark on large-scale production in 2020 and will export the oil through the 865-kilometre pipeline linking the Turkana oilfields to Lamu port to be built at a cost of Sh210 billion.

The pipeline will enable East Africa’s largest economy to pump out about 100,000 barrels a day.

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 Sh4 trillion or half the gross domestic product (GDP).