Cost of Turkana oil pipeline now drops by Sh100 billion

Mr Andrew Kamau, Petroleum principal secretary. FILE PHOTO | NMG 

By NEVILLE OTUKI

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Summary

• Petroleum principal secretary Andrew Kamau said the cost of building the pipeline has dropped to an estimated Sh110 billion from the Sh210 billion  quoted earlier.
• The PS said the latest pricing is in step with changes in the design of the pipeline, including a reduction in the pipe’s diameter. 
• The pipeline will snake its way from the Turkana oil fields in northern Kenya to Lamu seaport.
• Construction is set to start late next year to be ready by 2021/22 when Kenya is expected to commence commercial oil production and exports.

Kenya has nearly halved the budget for planned construction of an 865 km pipeline that will move crude oil from Turkana oilfields in the north to Lamu seaport, saving the economy millions of dollars.

Petroleum principal secretary Andrew Kamau said the cost of building the pipeline has dropped to an estimated Sh110 billion from the Sh210 billion  quoted earlier.

The PS said the latest pricing is in step with changes in the design of the pipeline, including a reduction in the pipe’s diameter. 

“Earlier studies were based on the original design that factored in Ugandan oil, but now it’s just Turkana oil, making it necessary to reduce the diameter.” Mr Kamau said.

Kenya opted to build the pipeline alone after Uganda, which had originally agreed to partner with Kenya, dropped the plan and went for an alternative line through Tanzania.

The pipeline will snake its way from the Turkana oil fields in northern Kenya to Lamu seaport.

Construction is set to start late next year to be ready by 2021/22 when Kenya is expected to commence commercial oil production and exports. The developers are expected to pump out up to 80,000 barrels of crude per day when the pipeline is fully operational.

“We will have the FID (final investment decision) by end of quarter two next year and subsequent construction,” Mr Kamau said, adding that discussions with unnamed international contractors were ongoing and are leaning towards debt financing of the works.

The deep cut in construction budget means taxpayers will carry a lighter debt load and the economy saved from hard currency haemorrhage.

Turkana oil is classified as waxy and sticky, making it necessary to heat it during transportation, a quality that is expected to determine the design of the pipeline.

Kenya is, however, in the short-term gearing up for an early oil export plan meant to test the global supply logistics and determine the price-point for the Turkana oil.

Under the early oil export plan, up to 110 trucks will haul some 2,000 barrels of oil per day from northern Kenya for storage at the defunct refinery in Mombasa in readiness for shipment abroad.

British explorer Tullow Oil, the main developer of the Turkana oilfields, is jointly working with partners Africa Oil of Canada and French major Total on the project.

Kenya last month picked another British firm Wood Group to design the Turkana-Lamu crude pipeline, an exercise expected to take eight months.

The engineering design contract for oil production went to Australia’s Worley Parsons.

Tullow initially struck oil in Turkana’s Lokichar basin in northwest Kenya in 2012, and has since followed it up with a string of other finds, putting the country on the path to becoming a producer of the black gold. The recoverable reserves are estimated at 750 million barrels of crude and considered commercially viable.

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