Early oil exports important for Kenya

The last four years have been the most remarkable period in Kenya’s oil and gas industry since exploration began in the country in the early 40s.

During this period, over 45 oil and gas exploration wells have been drilled, more than the total number of wells drilled since the 1940s.

At the same time, Kenya has also undertaken extensive policy, legal and institutional reforms in line with the new Constitution. This review has seen the approval of several Bills by Parliament including the Petroleum Bill 2015, the Community Land Bill 2015, and the Energy Bill 2015.

These important Bills not only align the oil and gas sector to the provisions of the Constitution but also set out the industry’s regulatory structure and ensure that it is managed in a transparent and equitable manner, with all production sharing agreements (PSC) ratified by Parliament.

The Bills additionally ensure protection of the environment, local community participation and provide a framework for managing the fiscal opportunities and risks of oil revenues expected once commercial production begins.

The industry provides an important building block for the continued growth of the country. Indeed, oil and gas is one of the eight key sectors supporting the economic pillar of our government’s Vision 2030 national development plan.

To ensure continued progress in Kenya’s oil and gas industry, the government, in collaboration with the Turkana County administration and the Kenya Joint Venture partners (Tullow Oil, Africa Oil and Maersk Oil) is now working on the Early Oil Pilot Scheme (EOPS).

EOPS will specifically exploit five wells to produce oil, with phase one targeting production of 2,000 barrels per day. The oil will be transported from Turkana to Mombasa by road in insulated tank-tainers.

Trucking of oil by road is widely practised in the US, Canada, India, Russia, and Kazakhstan, among other countries.

At current oil prices, EOPS is not expected to generate significant revenue. The project that most resembles Kenya is the Cairn India oil project. The crude oil produced at their Rajasthan fields is waxy and is transported in the world’s longest continuously heated pipeline.

Before this pipeline was built, Cairn India transported between 20,000 and 30,000 barrels of crude oil per day by road over a distance of 750 kilometres to Kandla port.

In October 2009, Cairn India exported their first 208,000 barrels of oil on board a Singapore registered ship. This is a parcel size similar to the one envisioned in the EOPS.

Critically, EOPS is an enabler and not a replacement of the Full Field Development (FFD), which will include among other LAPSSET (Lamu Port South Sudan Ethiopian Transport) developments, a crude oil pipeline from Turkana to Lamu carrying between 80,000 and 150,000 barrels of oil per day.

Although it will be a small scale project, EOPS will mark the first major milestone in Kenya’s oil and gas industry: producing and exporting crude oil for the first time in the country’s history.

So why are we undertaking this pilot scheme? First, EOPS will be key in establishing logistical and technical infrastructure (e.g. roads, bridges) and other key arrangements crucial for supporting FFD.

Establishing these aspects beforehand will allow the operators to identify and manage risks associated with large capital-intensive projects like FFD and so reduce potential delays.

The EOPS will also provide an opportunity for both the national and county governments to gain enabling experience and capabilities necessary to facilitate FFD.

Second, EOPS will provide important technical well data that will greatly assist in planning for FFD. This data will help the operators of the project understand the behaviour of oil reservoirs and how they transform as they produce oil.

This is also known as the appraisal phase. During the last appraisal phase, over 60,000 barrels of crude was produced and is currently stored at Lokichar.

With the drilling of five new wells, it is necessary to produce more crude oil in order to understand the reservoirs better and increase Kenya’s recoverable reserves from the current 750 million barrels to over one billion barrels.

This can only help improve the viability of Kenya’s crude export pipeline.

Provide revenue

This crude oil will have to be stored somewhere. The only two alternatives are to build more tanks at Lokichar or use the existing tanks at Kenya Petroleum Refineries in Mombasa.

We have chosen to use the already existing asset and provide revenue to the refinery. Third, EOPS will help establish Kenya as a crude oil exporter and provide valuable information on the international market for Kenyan crude.

Since our oil will be a new product in the global market, EOPS will help introduce it to the international crude oil market in a low key way and provide an understanding of what potential buyers are prepared to pay for the oil product.

Finally, EOPS will create employment and business opportunities that will assist in building the capability for Kenyans and local business, thereby positioning them to maximise on the opportunities created by FFD.

For these reasons, the EOPS is an important technical project which will be a key enabler for FFD which is some years away.

It should be clear that EOPS will not immediately solve the challenges faced by communities in Turkana. However, EOPS will act as a stimulus for tackling some of these challenges and unlocking immediate benefits.

For example, the government has allocated Sh3.2 billion towards tarmacking the road from Eldoret to Lokichar, alongside funding a modern 600km highway from Eldoret to Nadapal.

The section between Lochuma to Nadapal has already secured financing from the World Bank. This important upgrade will open up Turkana County, improve transport options for its inhabitants, and ease access both of Turkana goods to wider Kenyan markets and for consumer goods to Turkana. These infrastructure projects will also put Turkana on Kenya’s tourist maps by easing travel.

Our government recognises that the development of a successful oil and gas industry needs broad, concerted effort by all relevant stakeholders.

Together we can ensure the associated benefits and opportunities can be shared by both current and future Kenyan generations.

Mr Kamau is PS, Department of Petroleum, Ministry of Energy and Petroleum.