Kenya plans crude oil in the market by Sept 2016

Saturday December 26 2015

Sources say Nairobi State House-based logistics team steering the export strategy intends to work with freighters who will have trucks configured to transport crude oil heated to 70 degrees Celsius. PHOTO | FILE

Kenya plans to sell crude oil in nine months’ time despite expert advice that the earliest the Turkana oilfields can be commercially exploited is 2020.

A State House-based team has been given until next month to work on the logistics of the evacuation that would see crude moved by trucks from Lokichar to Kitale, from where it would be taken to Mombasa in specialised rail wagons for storage. 

“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,” said a source.

Delivering on the oil promise by September 2016 is said to be one of the immediate tasks assigned new Energy Cabinet Secretary Charles Keter. 

Tullow Oil Plc, jointly with Africa Oil Corporation have discovered 600 million barrels of oil, in northwest Kenya, which the government wants moved by road and loaded on rail wagons owned by Rift Valley Railways be transported to the Kenya Petroleum Refineries storage tanks in Mombasa. From there, the waxy crude will move by an existing pipeline that needs to be reconfigured so that it can pump directly to the jetty at the Kipevu Oil Terminal.

READ: Tullow set to begin Kenya oil production by 2020


“KPRL will earn fees for storing crude oil until 80,000 tonnes is accumulated to be ferried by a sea tanker of similar capacity,” sources said. The jetty does not accommodate ships of higher capacity.

The journey from Lokichar to the export market, most likely China, India and Malaysia, which have the advanced refineries to recover high quantities of white oil products from waxy crude, would be under specially heated conditions.

Ministries are now looking at how to refurbish 200 kilometres of road from Lokichar to Kitale in western Kenya to accommodate tankers. Although Kenya has a pipeline running from Mombasa to Eldoret and Kisumu, it only carries refined products, which cannot be mixed with the crude. 

The officials said the team is required to work closely with exploration firms, road transport firms, Rift Valley Railways (RVR), line ministries, agencies and state corporations to address sticking points including funding.

Before this intervention, Tullow and Africa Oil were expected to submit a field development plan (flow pipelines and production facilities) by March 2016. Sources said the road and rail solution would be an interim one until a $4 billion pipeline is built between the oilfields and Lamu port on the Indian Ocean, about 900km away.

Although President Uhuru Kenyatta and his Ugandan counterpart Yoweri Museveni agreed in August to build the pipeline jointly with the initial leg of 600km between Hoima and Lokichar, Uganda could still opt for a pipeline from its Albertine basin through northern Tanzania to the Tanga port. Uganda has discovered 6.5 billion barrels of oil in the basin and plans to construct a refinery at Hoima with a capacity of refining 60,000 barrels per day.

READ: Kenya, Uganda strike deal on oil route to export market

READ: Regional power play in tussle over new route of Uganda oil pipeline

The officials said KPRL will modify existing rail sidings to handle crude oil wagons and reconfigure the pipeline to take crude oil to the storage tanks and to deliver the commodity to the jetty for export. 

KPRL early this year started storing imported refined fuel for marketers at a fee. It has a capacity of 192,000 cubic metres for liquid petroleum products and 1,200 tonnes of liquefied petroleum gas.

This was done ahead of a government decision on the future of the plant.

The Kenya government and Essar Energy, each owning 50 per cent of KPRL, are yet to conclude terms of separation as shareholders to pave the way for the final exit of the Indian firm from the refinery.

Essar, in October 2013, announced it would sell its 50 per cent stake in the Mombasa-based facility after plans for a $1.5 billion upgrade were abandoned on the advice of consultants, who said it was not economically viable.

ALSO READ: Kenya refinery now stores crude oil

Sources said the logistics team steering the export strategy intends to work with freighters who will have trucks configured to transport crude oil heated to 70 degrees Celsius.

“The team has to work with the Kenya Ports Authority and Kenya Revenue Authority. KPRL is expected to install heating facilities as the oil’s temperature upon arrival in Mombasa will be 30 degrees Celsius and has to be raised using electricity,” said the officials.  

The timing of Kenya’s early-production-to-early-cash plan is surprising, given that oil prices have tumbled in the international market.

A barrel of crude has declined from over $100 per barrel in mid-2014 to below $50 per barrel for most of the year. The price crashed to $36 per cent per barrel after the Organisation of Petroleum Exporting Countries (Opec) failed to agree on December 4 in Vienna on production cuts.

Wood Mackenzie Ltd, a consulting firm based in London, said oil prices are unlikely to rise steadily in 2016.

“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 the firm.

The Opec meeting ended on December 4 with the ratification of the current output levels.

Saudi Arabia has ruled out cutting its output unless other producers such as Iran, Iraq, and Russia also reduce theirs. Iran has said it will not cut output until it reaches the 4 million barrels per day it controlled when the sanctions are lifted while Russia and Iraq are relying on volumes for revenues after the price collapse.