Kenya 2022 oil plan back on track as UK firm takes up pipeline design

Saturday April 28 2018

An oil pipeline. Kenya has picked Britain's

An oil pipeline. Kenya has picked Britain's Wood Group for oil pipeline design to inform the specifications of the pipeline as well as the actual cost. FOTOSEARCH 

By ALLAN OLINGO
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Kenya has picked Wood Group Plc, a British company, to design its oil pipeline to transport crude from fields in Lokichar, Turkana County in the north to the port of Lamu on the Coast.

The announcement last week puts the oil export plan back on track towards commercial production in 2021/22.

Kenya plans to build the 892-kilometre pipeline to pump the discovered commercial oil reserves in the Lokichar basin. The project cost is estimated at $2 billion.

Petroleum and Mining Principal Secretary Andrew Kamau said the design work would take eight months. This will then be expected to inform the specifications of the pipeline as well as the actual cost.

The EastAfrican understands that the British firm, which is listed on the London Stock Exchange, was awarded the design contract on Monday.

In January, Kenya invited bids for the front end engineering design (Feed) — which helps set the technical requirements for the line — from eight firms it had shortlisted before narrowing it down to two.

“We selected the eight firms from a pool of contractors that had submitted applications to be prequalified to undertake the Feed after we sent out a request for expression of interest in 2016,” said Mr Kamau.

The environmental and social impact assessment (ESIA) started last month as planned, putting into motion the country’s push to have its own pipeline after the original plan for a joint project with Uganda flopped when Kampala looked South to Tanzania in 2017.

“The firm has been tasked with helping with project construction specifications, formulating a plan for the pipeline project execution, coming up with a workable implementation schedule and writing bid documents to help Kenya select a contractor to develop the pipeline,” The EastAfrican was told.

Two days after the award of the contract, Tullow Oil hinted about it in its update saying that the Feed and ESIA works were progressing as per the plan.

“The upstream baseline data collection for the ESIA has commenced; the Feed contract is expected to be awarded this month. The pipeline ESIA work is also underway, and following the award of the Feed contract, this work is due to commence this month. Commercial discussions with potential pipeline contractors are ongoing,” Tullow said.

Kenya expects the construction works on the pipeline to start once the designs are complete, and take two years to be completed.

The new development seems to push further the early Oil Pilot Scheme in which the government was planning to move 2,000 barrels a day by truck from Lokichar to the Mombasa port.

On Monday, Mr Kamau told parliamentarians that the country’s quest to convert its Turkana oil into cash through the scheme faces new challenges after the Treasury slashed the project’s budget.

“The budget has been cut from the original $1.7 million to $290,000. This means that some activities for early oil will not take place,” Mr Kamau told the Parliamentary Committee on Energy.

The early oil exports were to be followed by commercial production and exports after the Mombasa-Lamu Lokichar crude oil pipeline is completed in 2021.

For Uganda, US-based firm Gulf Interstate Engineering completed the Feed for its joint venture with Tanzania at the end of last year.

The 1,445km export pipeline project is expected to move oil from Kabaale to the Chongoleani peninsula in Tanzania’s Indian Ocean coast.

The $3.5 billion joint venture will see an insulated 24-inch pipeline buried 1-2 metres with an electrical heat tracing system, associated ground facilities and a marine storage terminal with export facilities near Tanga.

Because Uganda’s oil is waxy in nature, its pipeline is set to become the world’s longest heated crude oil pipeline. The country is awaiting to give out the contract for the pipeline’s construction.

Uganda is finalising the incorporation of a special purpose vehicle pipeline company, which it will own with Tanzania, and the three joint venture oil firms, Total, China National Offshore Oil Corporation (CNOOC) and Tullow Oil.

In September 2017, Standard Bank, a joint financial adviser with Japan’s Sumitomo Mitsui Banking Corp and Imperial Bank of China (IBC), said that it planned to raise $3 billion by June this year to fund the pipeline’s construction, as Uganda angles to start its oil production in 2020.

Patrick Mweheire, Standard Bank Uganda’s CEO said the plan was to use a mix of debt and loans from export credit agencies to fund the project.

Uganda and Tanzania, together with the oil firms have been working on the financing blueprint, which will see them raise 70 per cent of the project’s total costs from international lenders.

The remaining 30 per cent capital will be raised through equity by the France’s Total, Anglo-Irish Tullow, China’s Cnooc and JV partners.

The Tanzania Petroleum Development Corporation and Uganda National Oil Company — through its subsidiary, the Uganda National Pipeline Company will also be part of the equity fundraising move.

— Additional reporting by Njiraini Muchira.

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