14 November 2017

Kenya: Crude Oil Extraction and Export Postponed Again

Uncertainty continues to dog Kenya's Early Oil Pilot scheme (EOPS) as it becomes apparent that a plan to start small-scale oil exportation next month is not feasible.

The failure of the scheme has forced the Kenya government and British firm Tullow Oil to contemplate investing $3 million to build tanks in Turkana to store the crude until such a time that it becomes possible to export it.

Barely a fortnight after Energy and Petroleum Cabinet Secretary Charles Keter said the government would start the scheme in December, exporting crude via road to Mombasa has proved impractical after the collapse of a critical bridge on the Lokichar-Eldoret road.

The Kainuk Bridge, which straddles the Turkwel River and connects Turkana and Pokot Counties, was recently destroyed by floodwater, making it impossible to move the crude.

While the government said the scheme will be back on track in December, Tullow, which is intent on recouping the investment it made in the project, differs and estimates that the earliest possible time would be next year.

"The current phase of exploration and appraisal drilling in the South Lokichar Basin has been concluded and the focus is now on the EOPS and the development of the discovered resources. The EOPS is now expected to commence early in 2018," Tullow Oil said in its latest trading statement and operational update.

Investing in tanks

Ministry of Petroleum Principal Secretary Andrew Kamau told The EastAfrican that the government is considering investing $3 million in tanks that will have a capacity to store 1.2 million barrels.

The tanks will enable Tullow to produce 2,000 barrels per day over the next two years, which will also enable the firm to undertake extended well tests to ascertain the quantity of oil in the reservoirs.

While the final decision lies with the government, as the investment in tanks will be funded by the exchequer, Tullow desperately wants to embark on pumping out crude oil.

Tullow has already extracted about 60,000 barrels but the lack of storage in Turkana is making it impossible to pump more.

The lack of storage capacity is why the government is pushing for the EOPS so that the oil can be transported to Mombasa for storage at the Kenya Petroleum Refinery storage tanks until there are sufficient quantities for export.

Trip to Oman

The refinery has 45 tanks with a total storage capacity of 484 million litres of which 254 million litres, is reserved for refined products while the remaining 233 million litres is reserved for crude oil.

Apart from investing in tanks in Turkana, the government is also gathering information from oil producing countries to help craft an oil revenue-sharing formula that meets the expectations of various stakeholders.

In efforts to unlock a revenue sharing standoff, the government has organised a benchmarking trip to Oman to collate information on how to arrive at the best formula, Mr Kamau said.

This will be the second trip, within a few months to the Gulf state, which is the largest producer of crude oil in the Middle East, although it is not a member of the Organisation of Petroleum Exporting Countries (OPEC).

Kenya is struggling to craft an ideal revenue-sharing formula after the Turkana County government and local communities rejected a proposal contained in the Petroleum Exploration and Development and Production Bill 2016.

The Bill had proposed to give 20 per cent of the revenue to the county government and five per cent to the local community, leaving 75 per cent for the national government.


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