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Economy

Kenya hits mark for commercial oil production

An oil rig at Ngamia 1 in Turkana where the British firm Tullow is involved in exploration. Photo/FILE
An oil rig at Ngamia 1 in Turkana where the British firm Tullow is involved in exploration. Photo/FILE  Nation Media Group

Kenya is finally set to join the league of oil producing nations after British explorer Tullow Oil Plc said it had surpassed the threshold needed for commercial exploitation of reserves in Turkana.

The announcement contained in Tullow’s results for the half year to June 30 were underscored by the company striking additional deposits in Etuko-1 well on Tuesday.

“Resources discovered to date are of a scale that the partnership will initiate discussions with the Government of Kenya and other relevant stakeholders to consider development options,” Tullow said. Africa Oil is Tullow’s partner in the Turkana exploration and appraissal phase.

The developments to be considered include facilities such as pipelines and refineries but Tullow said the oil could initially be moved by rail or road.

Tullow now estimates that the Turkana exploration basin has in excess of 300 million barrels of oil (mmbo) after it discovered up to 50 metres of fresh reserves in Etuko-1, making the country’s total found reserves commercially viable.

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The explorers had in early July found 40 metres of oil reserves in Etuko-1 following initial drilling.

“Following success at Etuko-1, potential mean resources are expected to be well in excess of 300 mmbo (million barrels), exceeding the threshold for development,” Tullow said in a statement on Wednesday.

Etuko-1 falls within the same basin as Twiga South-1 and Ngamia-1 wells in which huge reserves of oil were discovered recently. Tests on Twiga-1 and Ngamia-1 have confirmed the two wells alone have a potential of 250 mmbo, Tullow said.

With exploration going on in other parts of the country, Kenya’s profile as an oil producer is likely to rise even further. Focus has now shifted to the options of developing the key infrastructure required to exploit and move the reserves to markets.

“These discussions include consideration of a ‘start-up phase’ oil production system with potential to deliver oil export via road or rail in advance of a full-scale pipeline development,” said Tullow.

The company said it agreed with the government in February to carry on with exploration work in the Turkana basin as well as other parts of the country while evaluating the commercial potential of reserves found.

“This agreement allows a multiple field approach to development of the resources while permitting the continued focus on exploration to increase the resource base while concurrently appraising discoveries,” it said.

The Energy and Petroleum ministry could not be reached for comment as we went to press. However, sources said the government would explore options of a pipeline and rail shipment.

Last year the government said it planned to build a pipeline linking the port of Lamu to the oil fields in Turkana, with an extension to South Sudan and Moyale under the Lamu Port and Southern Sudan Ethiopia Transport Corridor (Lapsset) project.

The Lapsset project entails construction of a new sea port at Manda as well as standard gauge railway lines from Lamu to South Sudan with branches to Nairobi and Ethiopia from a hub in Isiolo.

It will also involve the construction of a highway from Lamu to Isiolo with an extension to Nadapal/Nakodok in South Sudan and another link to Addis Ababa through Moyale.

The government also plans to include an oil refinery in the Lapsset project even though there have been debates as to whether to build it in Lamu or Isiolo, which lies near the oil fields near Turkana.

“Under Lapsset it was proposed that a refinery be built in Lamu so that even if South Sudan failed to use the pipeline and Kenya failed to find oil, Kenya would still import crude and have it refined in Lamu,” a consultant involved in the Lapsset project said on condition of anonymity.

Lamu was also considered to have an advantage over Isiolo because it has abundance water, a key requirement for a refinery. The discovery of large oil deposits in Turkana, however, could favour Isiolo by virtue of proximity to the wells.

Last year, the Energy ministry said Kenya would push for a refinery in Isiolo to process crude from South Sudan and Turkana.

“We hope to make Isiolo a hub for refined products both from Kenya and South Sudan. Our prime concern will be to satisfy the domestic needs and those of the region. Any excesses will be pumped and exported through the port of Lamu,” former Energy minister Kiraitu Murungi said when he met a delegation from South Sudan in August last year.

He said Kenya targeted a “commercially viable” refinery of a minimum capacity of 100,000 barrels a day in Isiolo.

South Sudan and Uganda have backed the laying of pipelines to the Lamu port that is already under construction.

Uganda said in June it had agreed to a plan to build a pipeline from its oilfields to the new port being developed on Kenya’s northern coast to enable crude exports.

“It was agreed that we develop two oil pipelines — one pipeline that currently exists and brings products from Mombasa to Eldoret (in Kenya) should be extended to Kampala and Rwanda,” Ugandan Foreign Minister Sam Kutesa told a news conference after the summit between Uganda’s Yoweri Museveni, Kenya’s Uhuru Kenyatta and Rwanda’s Paul Kagame on June 25.

He did not indicate the date or the cost of completing the projects.

Mr Kutesa said another pipeline for evacuation of crude oil would be built between Uganda, South Sudan and Kenya, ending up at the port of Lamu.

South Sudan previously put the price of a pipeline to Lamu at $3 billion while extending the Mombasa-to-Eldoret pipeline to Uganda was previously estimated to cost $300 million.

Tullow says with the discoveries in Kenya combined and output from Uganda, a pipeline delivering 500,000 barrels a day is needed by 2018.

Uganda is aiming for commercial output of oil by 2016 and estimates its crude reserves at 3.5 billion barrels. Wrangling over taxes and the size of a refinery to process some of the crude have stalled commercialisation.

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