An oil refinery plant. Kenya is set to export its first batch of crude
oil from the Lokichar oilfields to its storage facilities at the coastal
city of Mombasa in readiness for export. FILE PHOTO | NATION
Kenya is set to begin transporting the first batch of its Crude
oil from the Lokichar oilfields — about 550km northwest of the capital
Nairobi — to its storage facilities at the coastal city of Mombasa in
readiness for
export, moving closer to its dream of becoming a major oil producer.
export, moving closer to its dream of becoming a major oil producer.
Beginning this week, some 2,000 barrels of
oil will be trucked from Lokichar to Changamwe daily, marking the
beginning of the Early Oil Pilot Scheme (EOPS), which was supposed to
kick off in June 2017, but was delayed mainly by disagreements over how
revenues from the exports would be shared.
Kenya struck oil in the Lokichar Basin in 2012, with total recoverable reserves estimated at 750 million barrels.
President Uhuru Kenyatta is expected to flag off the first trucks on the 992km Lockichar-Kitale-Eldoret-Nairobi-Mombasa journey.
The
Ministry of Petroleum said on Wednesday that it plans to accumulate
about 400,000 barrels in Changamwe by December before it begins
small-scale exports which are expected to pave the way for full field
production by 2021.
“Once we have accumulated 400,000
barrels of oil, we will then begin a tendering process and sell to the
bidder with the best price,” said Petroleum Principal Secretary Anthony
Kamau.
Stockpiling barrels
Mr
Macharia has said that the oil will be sold to international buyers
through competitive bidding. Refining firms and international traders
will be invited to bid once the cargo is stockpiled at Kenya Petroleum
Refineries in Mombasa.
Mr Kamau said international
tender for submission of bids is expected to be floated before the end
of 2018 and crude will be sold to a bidder who offers Kenya the best
price.
“Crude is expected to be discounted at $2 a
barrel of prevailing price. The EOPS is not a commercial business
venture but aims to establish a market before commercial crude
production in 2022,” he said.
The EastAfrican,
however, understands that it could take close to a year before the
first batch of oil leaves the country for the international market, as
it will take at least eight months to haul the 400,000 barrels to
Changamwe.
Currently, Kenya has 80,000 barrels of
crude stored in Lokichar awaiting transportation and is adding between
400 and 500 barrels per day.
The transportation will
involve at least 110 specialised trucks with a capacity of 150 barrels
each, making the 992km journey that could take over one week for a round
trip.
According to the Petroleum Ministry, Kenya’s
production capacity is expected to continue growing to about 2,000
barrels per day by 2019 and top 80,000 barrels once the construction of
the 892km pipeline linking the Lokichar oilfields and the port of Lamu
is completed.
Discussions on the construction and
financing of the estimated $1.1 billion pipeline, which is being
designed by London-listed Wood Group Plc, are ongoing, according to the
ministry, ahead of the expected commercial production.
Revenue sharing
The
ministry has defended the choice of road transport for the EOPS stage,
allaying fears that the Kainuk Bridge on the Turkwel River on the
Kapenguria-Kainuk road, which will be used to truck the oil, will not
withstand the weight of the tanktainers.
“As far as we
are concerned, the road is motorable, and renovation and upgrading
works on the bridge will be completed by April next year. At the moment,
we are not using the bridge but a ford we have constructed,” Mr Kamau
said.
The drift can be risky during the rainy season
due to high water levels, although the Kenya National Highways Authority
is stabilising the riverbed with concrete.
Kenya was
to export its first oil in 2017, but disputes emerged between the
national government, the county government of Turkana and the local
community over how proceeds from the commodity would be shared.
“We
now have an understanding that can put Kenya in the league of oil
exporting countries,” said President Kenyatta recently after reaching an
agreement that raised the county government’s share of the oil revenue
to 20 per cent and cut the national government’s to 75 per cent, while
the local community retained 5 per cent.
However, as Kenya gears up to its first ever oil exports, it is still too early to celebrate.
“The
issues of price, break-even point, and revenue sharing are not relevant
at this point. This is no commercial venture,” Mr Kamau cautioned.
In
2016, Kenya’s Energy Ministry, which handled oil, said Kenya would make
between $34 and $50 per barrel in profits from the export, which would
place its break-even level above oil-rich economies such as Saudi Arabia
at $23.50, but lower than Nigeria’s profit level of $31.60, according
to data from Norway-based consultancy firm Rystad Energy.
The
Kenyan government has also remained tightlipped on the revenue sharing
agreements between itself and Tullow Oil, which says it has spent nearly
$2 billion — recoverable from proceeds of oil sales — in exploration
works in the Lokichar Basin since it started prospecting for oil back in
2010.
In Ghana, where Tullow has operations, it has
made its petroleum agreements with the government and the relevant Deeds
of Assignment public on its website.
At the time of
export, the crude will be pumped from Changamwe to the Kipevu Oil
Terminal jetty for loading into sea tankers. The terminal handles
tankers with a capacity of 80,000 tonnes.
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