Kenya contracts US firm to find cheaper sources for liquefied gas

Sunday December 12 2021
Liquefied petroleum

Liquefied petroleum gas storage tanks. LPG cost in Mombasa is much higher than in Dar es Salaam. PHOTO | COURTESY


Kenya has revived its ambitious natural gas generation project after it gave the greenlight to a US firm to conduct a feasibility study for gas power generation in Mombasa.

This comes as Nairobi seeks to cut its reliance on Dar es Salaam for liquefied petroleum gas (LPG), which has seen the Tanga plant in Mtwara service nearly half of the Kenyan market, trucked via Namanga and Holili border posts.

Despite Kenya and Dar signing an agreement to start working on a gas pipeline from Dar es Salaam to Mombasa, as part of a long-term project to share energy resources, Kenya remains open to other options including importing the commodity.

This means, that the agreement between Kenya and Tanzania might be nullified if the company recommends cheaper means to get natural gas to generate power.

US-based K&M advisors said that Kenya will go for the cheapest option as it seeks to develop a liquefied natural gas (LNG) import terminal in Mombasa.

“K&M Advisors has been engaged by the Kenya Electricity Generating Company PLC (KenGen) on behalf of the Kenyan government and the country’s energy sector to conduct a feasibility study for natural gas power generation in Kenya. The feasibility study will examine the technical, economic, financial and environmental and social feasibility of project,” read the statement by K&M Advisers.


Diversify energy mix

While Kenya does not have its own natural gas resources, the study will examine the potential to create a domestic natural gas market for power generation and industrial use via importation with the aim to help diversify the country’s energy mix, improve energy security, reduce the cost of electricity and reduce greenhouse gas emissions.

The study, organised into 17 tasks that will be implemented over 12 months, will examine the technical, economic, financial and environmental and social feasibility of the project.

“We are extremely pleased to start another engagement with KenGen and use our team’s extensive experience on LNG to power projects to assist Kenya in finding a viable solution for introducing natural gas to Kenya’s generation matrix,” said K&M President Alfomso Guzman.

Power plant conversion

The study will cover the development and operations of a LNG import terminal in Mombasa, conversion of Kenya’s 10 existing heavy fuel oil (HFO) and kerosene power plants to natural gas.

K&M will start with assessing the LNG demand from converting existing power plants to natural gas, building a new power plant, and displacing HFO or diesel used industries and it will then identify and cost viable LNG sourcing, shipping, import terminal logistics and transportation options.

Various LNG import terminal sites in Mombasa — floating and onshore configurations — will also be analysed.

K&M will assess whether natural gas sourced from an LNG import terminal in Mombasa could produce electricity at a lower cost than HFO or kerosene. LNG transportation using trailers or rail will also be considered.

The study will review contractual arrangements for the implementing the project, including contracts for LNG or gas offtake from power plants. LNG or gas transport, LNG import terminal development and operations, and LNG supply ex-ship.

The US team will also analyse how to procure the various components of the LNG supply chain competitively. In parallel, K&M Advisors will evaluate the feasibility of converting the existing HFO and kerosene plants to natural gas as well as construction of a Greenfield natural gas plant.

Tanzanian liquefied petroleum gas (LPG) firms export about 40 percent of their annual volumes to Kenya. Dar imports 100,000 tonnes of LPG from the Middle East.

Data from the Petroleum Institute of East Africa shows Lake Gas, owned by Tanzanian billionaire Ally Etha Awadh who recently acquired Kenya’s Hashi Petroleum, was Kenya’s biggest importer of gas, controlling 23.5 per cent of the LPG market.w

The LPG cost in Mombasa is much higher than in Dar es Salaam with experts saying the main reason why LPG from Dar es Salaam or Tanga is cheaper is because the offloading and storage infrastructure at these two ports is more efficient.

Efficiency in cost factor

Firms in Kenya have higher storage unit costs due to facilities like floating storage, which need fuel to run, and higher maintenance cost compared with fixed storage facilities.

The Tanga terminal can store up to 1,000 tonnes of LPG where gas is re-exported from there to other markets like Kenya, Zambia, the Democratic Republic of Congo, Rwanda, Uganda and Burundi.

The county also boasts of the $1.2 billion Songo Songo plant in Mtwara financed by the Exim Bank of China.

Tanzania has so far discovered more than 56 Tcf of natural gas and is currently engaging oil companies individually on the terms of developing a $30-billion LNG project.

Equinor, Royal Dutch Shell Plc and Ophir Energy Plc own natural-gas blocks in the country.

In June, Mombasa Gas Terminal, received a $23 million World Bank-IFC financing facility for construction of the first phase of an LPG import and storage terminal.

“We confirm that we have received a facility from the World Bank for Phase One of our bulk LPG import and storage terminal. The second phase will complete the storage capacity to 22,000 metric tons or more with an annual throughput capacity of 400,000 metric tons. We are aiming to complete construction of Phase One and begin operations within six months,” said Mombasa Gas Terminal Managing Director Eng. Julius Riungu.

The new terminal will include a direct mooring access for very large-sized LPG carriers, storage and associated infrastructure that will have multiple loading points for transfer of LPG to road and rail transport. Several global LPG market players are angling for a long-term partnership with the project.

Kenya has also completed the $385 million new Kipevu Oil Terminal in Mombasa that can handle vessels with a dead weight tonnage of 200,000 and has a liquefied petroleum gas line to stabilise gas supply in Kenya. Nairobi says faster loading is expected to translate to lower prices for LPG. According to Kenya Pipeline Company (KPC) the new facility will reduce cost of gas by 30 percent once operational.

The EastAfrican has established KPC is in talks with Kenya’s Ministry of Energy to put up a dedicated LPG storage facility with an initial capacity of 25,000 tones. Kenya Ports Authority, who will run the terminal, have scheduled a dry run test in December.

KPC is also angling to handle LPG with investment in bulk storage and supply. The state agency last week said it was seeking to take over operations at the new Kipevu Oil Terminal and the acquisition of the Kenya Petroleum Refineries Ltd Changamwe facility.

The state corporation is currently in talks with the Energy ministry and industry players on the process as plans to become the major gas handler for Kenya.

The tender for construction of the facility should be ready by March next year, with the facility expected to be up and running within the next three years.

KPC will then use the Open Tender System, similar to that currently used to import petroleum products, to push down the cost of LPG in the country.