Oil spat threatens Christmas fuel supplies

But the Energy ministry has ordered that a ship carrying diesel meant for KenGen’s emergency thermal power generators should be given preference at the Mombasa port discharge berth over the Kenya Shell vessel.

This means the Kenya Shell fuel, which was targeted for consumption at service stations from mid this month could delay by up to four days, an eventuality that could hurt diesel supply in the week leading to Christmas with oil marketers warning that the country’s reserve of diesel is thinning.

Scarcity of the fuel is set to hit hard public transporters who account for the largest consumers of diesel, which also accounts for the largest share of petroleum products including jet fuel, unleaded fuel and kerosene.

Official data shows that diesel consumption accounts for about 40 per cent of the close to three million metric tonnes of petroleum products consumed in Kenya, and its scarcity normally slows down the country’s public transport system.

But the Energy ministry is of the opinion that an electricity crisis brought home by reduced fuel to the power generators is a bigger evil compared scarcity of diesel at the pump stations.

Correspondence between the ministry and Kenya Shell seen by Business Daily detail the spat between oil marketers and the government, with both parties striving to justify their positions in the stand off.

“Total Kenya (servicing KenGen contract) should endeavour to evacuate the product as soon as possible to create ullage for the next vessel carrying industry AGO (Kenya Shell diesel),” said the ministry’s permanent secretary, Patrick Nyoike, in a letter to Kenya Pipeline Company.

In mid-August, KenGen, on behalf of the government, contracted Aggreko to provide an additional 140 megawatts of emergency power to cushion the country against effects of the power shortfall--that had forced a roll out of a two month power rationing in August.

Mr Nyoike reckons the KenGen cargo came ahead of the Kenya Shell vessel and the country risks being plunged into darkness as the 140-megawatt emergency power generators are running short of diesel.

Kenya Shell, however, disputes KenGen’s claims that the power generator is running short of fuel and says the permanent secretary’s order went against the industry’s tradition of giving preference to discharge of oil meant for consumption at the pump stations.

A gentleman’s agreement in the local oil market says that vessels are evacuated on first-come basis, but industry cargo should be given preference.

Normally, oil marketers tender monthly for oil importation in a system dubbed Open Tender System (OTS) where one marketer imports crude oil, which is only enough to last a month, on behalf of other players.

Kenya Shell argues that the energy ministry order may trigger an acute fuel shortage due to delay in getting the diesel to the pump stations.

“In addition to this the industry is short of AGO (diesel) at a time when we are going into festive season,” said Ben Obura, the planning and trading manager at Kenya Shell in a letter to Mr Nyoike.

“The argument that KenGen is low on product is also not correct as MT Risanger (a vessel) just discharged 29, 093 cubic meters for KenGen last week and receiving another 30, 000 cubic meters will simply fill up the tanks.”

Christmas is typically a heavy driving period, and oil marketers are a predicting a steep rise in demand in the run up to the festive holidays.

Mr Obura is also warning that the delay could take longer due lack of storage space at the Kipevu Oil Terminal, which has led to congestion at the terminal and high demurrage (waiting charges paid to vessel owners) for petroleum importers.

Demurrage charges are $1 per ton daily and they make fuel more expensive since the additional costs are normally borne by consumers.

Last year, for instance, the oil industry paid about $10 million (Sh750 million) to tanker owners as demurrage charges due to ships failing to off-load imported refined fuel in good time at Kipevu oil storage facility in Mombasa.

Now, Kenya Shell says that the government will have to underwrite the additional costs brought home by the delay, suggesting that it does want to pass on the extra charges to the consumers and other marketers whom it had imported the cargo on their behalf.

“We would want to be indemnified by the MOE for any claims, costs and any other kind of expenses made on us both by the industry and vessel owners,” said Mr Obura.

Oil marketers are afraid of increasing pump prices on supply chain inefficiencies at a time when petrol prices look set to soar past Sh90 a litre in the run-up to Christmas.

A spot-check by the Business Daily showed that unleaded fuel was retailing at Sh87 a litre within the Central Business District (CBD).

On Sunday, crude prices stood at $77 having risen from $52 a barrel in April, when local pump prices stood at Sh72 a litre.

Twists and turns

The rise in fuel pricing will pile pressure on inflation on increased transport, fuel and other goods and services that rely on fuel as a factor of production.

Supply bottlenecks have gripped Kenya’s oil industry in recent years from break down at country’s sole ageing refinery to capacity constraints at Kenya Pipeline Company and inadequate space at the Kipevu Oil Storage Facility.

All these turns and twists are taking place as the country faces another supply risk: piracy in the Indian Ocean.

Kenol Kobil, which is meant to ship the industry cargo in January, has warned of possible supply shortages caused as vessel owners’ show reluctance to deliver products along the East African coastline.