Kenya to introduce crude oil into the market by next year - CNBC Africa

Kenya to introduce crude oil into the market by next year

East Africa

by Imara Africa Securities* 0

Kenya is likely to export its oil to China, India and Malaysia. Photo: Wikipedia

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 reads TheEastAfrican.

A Kenyan State House-based team has been given until January 2016 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. 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 has 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 for transportation to Kenya Petroleum Refineries (KPRL) storage tanks in Mombasa. From there, the waxy crude will move by an existing pipeline which still needs to be reconfigured, so that it can be pump directly to the jetty at the Kipevu Oil Terminal.

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 USD 4bn 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 2015 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. 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 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 USD 100 per barrel in mid-2014 to below USD 50 per barrel for most of the year. The price crashed to USD 36 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.

Whilst the outlook for oil remains negative, we believe that the move to expedite the production of oil in Kenya may have a positive impact on the country’s balance of payments since it would increase the country’s exports. However, given the low global oil prices the country could generate lower revenue than originally projected, whilst potential hazards and environmental pitfalls may also ensue should the construction of oil facilities be implemented hastily and without proper design and testing.

This report was written by Imara Africa Securities. Imara serves African markets and promotes investing on the continent. Its funds under management exceed $484.15million.

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