Kenya and Uganda will have to pay higher transport costs than first estimated to move crude oil to the coastline.
This, experts said, has been caused by the building of separate pipelines to facilitate export by the two countries.
Analysts at KPMG said the return on investment for the pipeline from South Lokichar in northwestern Kenya to the Lamu port in the Kenyan coast, and the one from Hoima in the Albertine basin in western Uganda to Tanzania’s Tanga port, is expected to drop to 10 per cent, from 13 per cent.
KPMG’s report — East Africa Regional Cooperation in Oil and Gas Possible Reality — said the northern route from Hoima through Lokichar to Lamu would have had a lower pipeline tariff of $7.70 per barrel and $8.30 per barrel for Kenya and Uganda respectively with an expected return of 13 per cent for the facility.
With the planned two pipelines, the cost of transporting crude is expected to rise by 68 per cent to $12.94 for Kenya and 36 per cent to $11.30 per barrel for Uganda.
Uganda’s tariff for the central route will be $11.79 per barrel and Kenya’s $9.29 a barrel, with an arm from Nakuru to South Lokichar.
Kenya said it will build a $2.1 billion pipeline covering 855 kilometres from South Lokichar to Lamu port to facilitate crude oil exports after Uganda opted for southern route from Hoima through northern Tanzania to Tanga sea port.
The 1,443 km southern pipeline from Hoima through Masaka and Mutukula in Uganda and a cross the border to Bukoba in Tanzania, Biharamulo, Shinyaga and Tanga port is expected to cost about $3.5 billion.
Data from Kenya’s Energy Ministry shows Hoima was to have crude storage tanks of 127,200 cubic metres and a 24-inch pipeline covering 583 km to Lokichar with a peak elevation of 1,430 metres above sea level.
Lokichar was to have storage tanks of 63,600 cubic metres and a 30 inch pipeline covering 855 km to Lamu where raw fossil fuel is to be stored in a 190,785-cubic metre terminal with a heating station before being loaded on the sea tankers.
The report said projected breakeven price for Kenya previously was $37 to $42 per barrel but the matrix had changed to $45 to $49 per barrel.
“Breakeven prices for the development in Uganda are now estimated at $51 per barrel. Even with now improved Brent prices at close to $50 per barrel, the viability of the projects has to be examined more closely,” reads the report.
South Sudan, which recently joined East African Community has signed memorandum of understanding to building a crude pipeline connection either through Lokichar in Kenya to Lamu port or to the port of Djibouti through Ethiopia.
South Sudan, with its own internal conflict, pays $25 a barrel to export crude through Sudan. The long history of conflict with the North means that exports can suffer disruption any time. Uganda has discovered 6.5 billion barrels of crude oil and Kenya has found 750 million barrels of resources but commercial production has not started as a pipeline is yet to be built to the Indian Ocean shore to facilitate export.
The two countries had agreed in 2015 to jointly build a $4.5 billion pipeline of 1,500 kilometres from Hoima through the South Lokichar basin to Lamu port but Uganda opted in April for a facility through northern Tanzania to Tanga.
Toyota Tsusho in 2014, carried out feasibility study of the Northern Corridor through Lamu port with central route option from Hoima through Kampala to Mombasa port but recommended a 1,500 km pipeline of Lamu Port Southern Sudan Ethiopia Transit corridor project.