Now Kenya postpones first crude oil export

Monday January 21 2019

A truck loaded with crude oil enroute to Mombasa from the oilfields in South Lokichar

A truck loaded with crude oil enroute to Mombasa from the oilfields in South Lokichar. Only 60,000 barrels have been transported to the Kenya Petroleum Refinery Ltd depot in Changamwe. FILE PHOTO | NMG 

By NJIRAINI MUCHIRA
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Kenya's plan to export crude under the Early Oil Pilot Scheme (EOPS), remains elusive, after Tullow Oil pushed the date of the first shipment to June.

The project was launched in June 2018, and was to deliver the maiden shipment of 400,000 barrels in February this year.

The British oil firm said the new date is informed by the fact that it has failed to hit a target of trucking 2,000 barrels of crude daily from the oilfields in South Lokichar in northwestern Kenya for storage at the refinery in Mombasa.

Only 60,000 barrels have been transported to the Kenya Petroleum Refinery Ltd depot in Changamwe, a development that continues to put the government’s ambitions to be the first country in East Africa to export crude on hold.

In its latest trading statement and operational update, Tullow Oil said, “The transfer of crude oil from Turkana to Mombasa by road continues as part of the EOPS with an average of eight trucks being dispatched every two days, transporting approximately 600 barrels per day.”

The failure to achieve the February 2019 target is a major setback for the controversial scheme, which the government contends is a necessary precursor to full development and commercialisation of the crude oil business.

The scheme, which has encountered numerous roadblocks — some literal after the local community protested about the neglect of its infrastructure and security, amid disputes about the revenue-sharing formula — is designed to prove Kenya’s capacity to export crude oil and prepare the international market for full production.

According to Tullow, substantial progress has been made towards full production, with the final investment decision between the joint venture partners — the Kenya government, Africa Oil Corp and Maersk Oil — expected to be reached later this year to guarantee full-scale exports in 2021, when a crude pipeline to the Lamu shoreline is expected to be ready.

“This will require several key milestones to be achieved throughout this year, including land acquisition, commercial frameworks and contract awards,” said the firm.

Design

For this to happen, however, British firm Wood Group must complete the front end engineering and design (Feed) work for the $2 billion Lokichar–Lamu pipeline on schedule.

The Feed, which will inform the specifications of the 892km pipeline as well as the actual cost, is expected to be completed in the first quarter of this year. The environmental and social impact assessment is expected in the second quarter.

Failure to deliver these two crucial reports on time could impact contract awards and construction of the pipeline, and potentially further delay the crude export programme.

While Tullow reckons that it has made substantial progress in Kenya towards crude exportation which is crucial in ensuring it recoups its massive investments, in Uganda, the firm’s plans to sell its interest to joint venture partners Total E&P and China National Offshore Oil Company (CNOOC) have remained in limbo since 2017 over tax disputes with the Ugandan government.

“Tullow and its partners in Uganda continue to work with the government to finalise the farm-down, which is now expected to complete in the first half of 2019,” said the firm.

Resolving of the standoff will see Tullow receive a cash completion payment of $100 million and a payment of approximately $100 million to reimburse it for pre-completion capital expenditure. A further $50 million of cash consideration is due when the FID is taken.

Unlocking the stalemate will also give operators of Uganda’s crude the impetus to accelerate the construction of the Uganda-Tanzania pipeline, which will start in Hoima and terminate at the seaport of Tanga in northern Tanzania.

The operators are targeting a final investment decision in the first half of this year once agreements with the governments of Uganda and Tanzania are completed.

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