5 January 2016

Kenya: Breakthrough for Kenya's Budding Oil Production Industry

Photo: Business Daily.
File photo.

Kenya's first oil cargo is set to reach the export handling facilities at the Port of Mombasa using trucks and railway by September even as the final word on the proposed crude pipeline from Uganda continues to hang in the balance.

President Uhuru Kenyatta has given a State House team until the end of January to work out on the logistics of transporting the crude oil from the oil fields in Turkana County.

Smart Company has established that the team is working on a plan to start transporting the crude oil in trucks from Lokichar oil basin to Kitale town, then to Mombasa in special railway wagons beginning September.

"The team has been asked to work on the report expeditiously as the thinking in government circles is that Kenya has to start producing oil," The EastAfrican quoted a source privy to the information, adding that the new Energy CS Charles Keter has been tasked to deliver on the oil export programme by September 2016.

If successful, the deal will be a big breakthrough for Kenya's nascent oil production industry, with 2016 marking the country's entry into the league of oil exporting nations.

However, experts note that the earliest the Turkana oil fields can be commercially exploited is 2020.

Oil and gas exploration company Tullow states that it can only produce the first oil by 2020.


In its latest update report, the Tullow says, "a sanction decision for oil production is expected by the end of 2016, and the first production will happen approximately three-and-a-half years post project sanction".

A Toyota Tsusho feasibility study on the Kenya-Uganda crude oil pipeline shows that the flow of the first crude oil is expected in October 2022 at the earliest.

This will come after the commissioning of the oil pipeline in the last quarter of 2020.

Kenya's decision to begin early oil production comes amidst falling crude prices in the international markets.

Some analysts, however, have expressed optimism that 2016 is a good year to begin production as the global oil prices are set to start recovering.

The Organisation of Petroleum Exporting Countries, which consist of 13 nations, released a report pointing to a recovery in oil prices to $70 a barrel beginning this year.

However, a London-based consulting firm Wood Mackenzie Limited said that the oil prices are unlikely to rise steadily this year.

"It is going to be a slog until the second half of 2016 with the oil market facing rising Iranian oil output and continued implied stock builds for the first half of 2016," said Wood Mackenzie.

"Really, I wouldn't like to be in the shoes of an oil exporter getting into 2016. It's not exactly looking as if there is light at the end of the tunnel any time soon," the Business Daily quoted global online trading and investment bank Saxo Bank senior manager Ole Hansen.

Kenya's decision to export oil this year is expected to push neighbouring Uganda to make up its mind on whether to embrace the northern or southern route for exporting the region's crude oil.

At the moment, Uganda is exploring the Tanzania route that passes through Tanga to ascertain its commercial viability for transportation of her crude oil after talks on a $4 billion Uganda-Kenya crude oil pipeline hit a dead end.

The latest development on oil production puts investors Tullow Oil and Africa Oil as well as Energy CS Charles Keter under pressure to meet the deadline set by the President.

Sources, however, say that the current plan is temporary and will help the government start making money from the oil resource even as plans on the construction of a pipeline continues to gather pace.

The temporary plan must have been hyped after Tullow Oil, together with its partner, Africa Oil Corporation, announced new oil finds in northern Kenya mid last month.


"Tullow Oil Plc (Tullow) announces that the Etom-2 well in Block 13T, northern Kenya, has encountered 102 metres of net oil pay in two columns," the explorer said, adding: "Oil samples, sidewall cores and wire line logging all indicate the presence of high API oil in the best quality reservoir encountered in the South Lokichar Basin to date."

Kenya has discovered over a billion barrels of oil deposits in the north western part of the country.

Already ministries have been tasked with repairing the 200-kilometre Lokichar-Kitale road in western Kenya to ease the movement of oil tankers.

The current oil pipeline, which runs from Mombasa to Eldoret and Kisumu, is not an option for transportation of the crude oil since it only carries refined products.

The crude oil is expected to be moved by road from Lokichar oil fields and then loaded onto wagons owned by the Rift Valley Railways for onward transportation to the Kenya Petroleum Refineries storage tanks in Mombasa.

Once at the port, the waxy crude will move by an existing pipeline, which will pump it directly to the landing stage at Kipevu oil terminal.

Sources say that the State House team will work closely with freighters who will have trucks configured to transport crude oil heated to 70 degrees Celsius.

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