Ministry shrugs off doubts over early crude oil exports

The Energy ministry has brushed off doubts over its early crude oil export plan despite growing concern that the high cost of logistics involved could erase envisaged economic gains.

Officials have said they are ready to roll out their plan, which involves moving crude oil by trucks, train and pipeline, having tested it under every conceivable economic model.

“We are not trying anything new here but a model that has worked in other economies,” Petroleum PS Andrew Kamau told the Business Daily.

The Cabinet approved the early crude export plan last week, raising fresh queries over the commercial viability of setting up logistical assets worth over Sh200 billion before exploration firms discover new reserves.

Kenya has recently adjusted its officially confirmed crude oil reserve from 600 million to 750 million barrels.

To move the oil to markets by sea, the Cabinet has approved the construction of a bridge, a road and a pipeline which risk being put to economic use for only 20 years if exploration firms do not discover new oil quantities in future.

The Sh3.2 billion Leseru-Lokichar road, which is expected to connect the remote Turkana site to Eldoret, is nearly complete.

Last week, the Cabinet also approved plans to replace Kainuk Bridge to enable larger trucks to move huge quantities of crude.

In the long run, the Cabinet has approved the construction of the Lokichar-Lamu pipeline “which will be the main evacuation/transport route for crude oil in future.

“The country is in the process of establishing an enabling commercial and infrastructure arrangement that will facilitate the creation of an international market for Kenya’s crude oil,” the Cabinet said in a brief after its Thursday meeting. The cost of building a 865-kilometre crude oil pipeline from Lokichar to Lamu is estimated at Sh210 billion.

No investor has so far expressed interest in the pipeline venture publicly despite Kenya’s preference to have the infrastructure built through a public-private partnership. Under the export plan approved last week by the Cabinet, the government will initially move up to 4,000 barrels per day via trucks to Eldoret and by train to Mombasa port.

That means at least 7.3 million barrels will have moved to the port by the time a new pipeline is completed in five years.

More discoveries

With a crude pipeline projected to pump an average of 100,000 barrels per day, the reserve left by the time the pipeline is ready (742.7 million barrels) can all be moved to Lamu in 20 years.

Mr Kamau said it was too early to rule out more discoveries since only a handful of oil blocks have been explored so far.

In the meantime, the government has been undertaking trials on the logistics of moving crude to Mombasa port by trucks and train.

“At daily flows of between 80,000 and 120,000 barrels, we are well within economic scale,” Mr Kamau said. “Sudan started its export by pumping only 50,000 barrels. India was also not far from that range when it first exported crude.”

Kenya initially hoped to build a joint pipeline with Uganda but Kampala later opted for the Tanzanian route.

The analysis, compiled by regional consultancy firm KPMG, shows that pipeline tariff will rise to at least $12.94 (Sh1,294) per barrel if Kenya builds its own pipeline.

A joint crude pipeline running the 1,300 kilometres from Hoima through Lokichar to Lamu would charge a lower tariff of $7.70 (Sh770) per barrel, the analysis shows.