Oil shortage looms as firms row over port storage space

More than a dozen speculators have invaded the petroleum market, taking up much of the storage space at the Mombasa port and exposing consumers to an acute shortage of fuel during the festive month of December, industry sources said.

The speculators, in collaboration with Kenya Pipeline Company (KPC) and ministry officials, are stockpiling petroleum in anticipation of a demand surge in the regional market associated with the December holidays. 

Oil marketers have said in a letter to Cabinet Secretary for Energy Davis Chirchir that they risk running out of supplies because of inadequate storage space at KPC’s Kipevu depot for consumption in the festive month.

The marketers say much of the space has been taken up by newly-licensed petroleum importers with no retail outlets despite an earlier agreement between the ministry and oil marketers freezing the licensing of new importers.

“The Ministry of Energy and Petroleum promised that no more oil marketing companies would be introduced downstream until a significant increase in the pumping capacity of the pipeline is achieved, (but) we have seen 16 new entrants into the pipeline since January,” the marketers say in the letter to Mr Chirchir, adding that their entry has amplified an already chaotic situation in the pipeline.

Mr Chirchir, however, said that only two firms have been licensed since the beginning of the year.

“I only know of two firms,” he said in a phone interview before referring us to the Energy Regulatory Commission (ERC) for details. Fear of a looming fuel shortage is hinged on the fact that most of the new players do not have retail outlets, risking the clogging of the Mombasa port facilities because of delays in picking up their oil stock in anticipation of brisk business during Christmas when movement of people rises to an all-time high.

The oil marketers’ letter, which was also copied to ERC director for petroleum Linus Gitonga, said a total of 16,483 cubic meters (16.4 million litres) or 40 per cent of local oil stock was allocated to the 16 newcomers in the pipeline’s throughput system between July and September this year.

Another 13.8 million litres was allocated to the new companies in October based on their market share , piling pressure on the pipeline.

“Oil marketing companies with significant investments in Kenya face frequent fuel supply challenges because of these swings in storage space,” oil marketers say in the letter.

KPC’s Mombasa-to-Nairobi line has a pumping capacity of 800 cubic meters per hour but monthly average pumping rates rarely exceed 650 cubic meters per hour, slowing down evacuation of fuel.

That complicates the market terrain for the big marketers because the ullage (pumping space) is shared based on the functional capacity of 650 cubic meters per hour. Fuel shortages associated with oil cartels hit Kenya hardest in 2011 when a group of unscrupulous marketers held up to 19 million litres of petroleum in KPC tanks in anticipation of roaring sales.

It later emerged that most of the companies, including Addax Kenya Limited, Royal Energy Limited and Gulf Oil did not have marketing outlets, raising questions on how they got space in KPC’s storage facilities.

The ensuing crisis prompted a revision of storage rules to provide that 70 per cent of oil stock imported through the open tender system and stored at the Kipevu facilities would be for domestic consumption while the rest (30 per cent) would be reserved for transit consignments to neighbouring Uganda and Rwanda.

The new rules also demand that 60 per cent of the domestic fuel ullage be shared among the marketers according to marketshare while the remaining portion be managed via the pipeline’s throughput system.

Mr Gitonga said only three new firms had been licensed this year contrary to claims by the oil marketers that the ministry had allowed up to 16 new players to enter the market.

“The three firms so far licensed this year (2013) are Amana Petroleum, Heller Petroleum and Interlink Petroleum,” he said, adding that the country now has a total of 67 licensed oil importers.

Mr Gitonga described the oil marketers’ letter as a knee-jerk reaction in the current heat of intense competition.

“The decision to open up the market is not regrettable. A few players who are opposed to opening up the market may be facing challenges,” he said.

The list of firms that the oil marketers named in their letter to Mr Chirchir includes Eliola, which was licensed last month, Kosmoil and Stabex International that got the green light in July.

Others are Axon, Prime Gas, Emkay and Afriol. Efforts to reach KPC officials for comment were not successful as the management was said to be in a meeting.

Oil marketers have warned that Kenya risks falling into an acute fuel stock-out in coming days if nothing is done to defuse the ullage time-bomb.

“Oil marketing companies with a network of petrol stations are forced to beg to access pipeline line-fill stocks to keep the stations wet as mandated by Kenya’s downstream laws and regulation,” the companies said.

“The 50 licensed oil marketing companies enjoy the luxury of having more than three-week stock lying idle in the pipeline… a critical review of the 50 will indicate that a majority do not have a single investment in the sector.”

“No depots, no terminal, no petrol station,” they added.

Ordinarily, fuel allocation should be based on the rate of stock evacuation by the companies, meaning faster picking up of petroleum products at the KPC terminals would win a marketer bigger share of ullage.

Industry heavyweights Total Kenya, Shell Energy, OiLibya, KenolKobil, Hashi Energy, and State-owned National Oil take the bulk of ullage allocation given their wide marketing networks.

“Ullage allocation is based on the rate of evacuation, meaning it is not fixed but a moving number,” Joseph Wafula, the petroleum economist at the Ministry of Energy, said in an interview but declined to comment on the alleged registration of new importers.

Kenya heavily relies on the Kipevu Oil Storage Facility (Kosf) for its petroleum supplies.

The facility now accounts for about 85 per cent of the country’s total oil supplies following the recent shut-down of the ageing Kenya Petroleum Refineries – a worrisome state of affairs to the oil marketers.

“In the event of a mishap at the port fuel supply would ground to a halt with serious consequences on economic activity,” Vivo Energy managing director Polycarp Igathe warned in an interview.

Kosf receives imported refined products, both distillates and spirits, and has a storage capacity of 326 million litres.

The facility has an operational capacity of 269 million litres comprising 58 million, 108 million and 103 million litres of petrol, diesel and dual-purpose kerosene respectively.