Company Industry
Oil sector faces changes as Uganda plans drilling
Kenya Pipeline Company Eldoret depot: Plans are under way to upgrade the company’s network. Photo/FILE
Regional petroleum business is set for a major realignment as plans for drilling oil in Uganda get under way.
Some investors in the sector are likely to lose out as others reap the benefits of oil discovery in the eastern Africa region.
Analysts say Kenya might earn less revenue at its ports if it does not strategise and seek mechanisms to partner with Uganda.
Currently, Kenya is the main entry point for petroleum products destined for the Great Lakes region, which makes it have a strategic role in the movement of petroleum products across the region.
“The discovery of oil in Uganda and decision to refine the crude oil into products will change the flow of oil around the region including the entry points of Mombasa and Dar es Salaam,” said George Wachira, an oil consultant with Petroleum Focus.
Kenya Pipeline Company (KPC), which owns the pumping infrastructure is likely have a major effect as its extensive pipeline layout will come under new capacity challenges.
Available data shows that KPC throughput discharge at the port of Mombasa for the period January to November last year was 3.9 billion litres.
KPC is currently pumping 220,000 litres of oil per hour to its main terminals in Nairobi, Nakuru, Kisumu and Eldoret.
It is in the process of upgrading its pumping capacity with intention of raising it to 330,000 litres per hour.
The upgrade estimated to cost Sh24 billion will see the installation of a 14-inch pipe to run all the way to the Eldoret terminal where it will be loaded to trucks for transportation to land-locked countries of Uganda, Rwanda, Burundi and Democratic Republic of Congo.
Currently, the region is served by an eight-inch diameter pipeline from Nairobi to Burnt Forest where it narrows down to six-inch diameter to Eldoret.
Another six-inch pipeline branches at Sinendet to Kisumu.
The collapse of the railway transport has lead to use of long-haul trucks to transport fuel, a move that has lead to not only employment of many but also offered ready market for spare parts and fabrication of haulage tanks.
For Kenya the potential of revenue loss is expected to pile pressure on the taxman annual targets.
For example, exportation of oil products in the first nine months of 2009 amounted to Sh3.7 billion.
To cash in on the discovery, Mr. Wachira reckons that Kenya need to adopt a pro-active approach so as to benefit from the new discovery rather than lose.
“What is within our control is to proactively approach Uganda on what their plans so that we can plan correctly without creating future white elephants and provide it with opportunity to leverage on our established infrastructure such as the proposed Lamu port which may become more relevant to Uganda oil sooner than Sudanese oil.”
Other industry players see the effect of the Uganda oil likely to be realised in the medium term and not immediately.
“It takes a considerable period of time to commercialise oil production, therefore, the discovery in Uganda will take up to 10 years to have a noticeable effect in the region,” said Peter Thuo, the head of exploration at the National Oil Corporation of Kenya (Nock).
Mr. Thuo says existing pipeline can also be reconfigured to allow for reverse flow from Uganda to Kenya thereby stabilising our supply and prices.
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