Economy

80pc of Kenya’s crude oil cannot be tapped

ngamia

A worker at the Ngamia 3 oil exploration site, run by Tullow, at Nakukulas Village, Turkana. FILE PHOTO | NMG

brianngugi_img

Summary

  • The company said a new audit on the Turkana oil fields revealed a larger reservoir – commonly referred to as Oil Initially In Place (OIIP) in exploration parlance – compared to the previous estimate of 1.77 billion barrels.
  • The commercially extractable volume climbing to 585 million barrels from the previous estimate of 433 million barrels, according to the audit by British petroleum consulting firm Gaffney Cline Associates (GCA).
  • The OIIP is different from actual proven oil reserves because it represents the total amount of crude that is potentially in a reservoir and not the amount of oil that can be recovered for commercial use.

More than 80 percent of Kenya’s estimated 2.85 billion barrels oil reservoir remains inaccessible for commercial exploitation due to limitations in extraction technology, British oil firm Tullow said in an update on its exploration programme in Turkana County.

The company said a new audit on the Turkana oil fields revealed a larger reservoir – commonly referred to as Oil Initially In Place (OIIP) in exploration parlance – compared to the previous estimate of 1.77 billion barrels.

The commercially extractable volume climbing to 585 million barrels from the previous estimate of 433 million barrels, according to the audit by British petroleum consulting firm Gaffney Cline Associates (GCA).

The OIIP is different from actual proven oil reserves because it represents the total amount of crude that is potentially in a reservoir and not the amount of oil that can be recovered for commercial use.

“The 2.85 billion barrels is what is called “oil in place”, it is not reserves; what’s key is how much can be recovered and the number of 585million barrels is comparable to other onshore oil fields around the world,” Tullow told Business Daily.

“It is possible that (in future) technology may see greater recovery from the field but 585 million barrels is our best estimate at present.”

At the current crude price of $75.50 a barrel, the potential crude in the reservoir would be valued at Sh23.66 trillion ($215 billion) — equivalent to two times Kenya’s GDP — while the proven commercially viable reserves are valued at Sh4.86 trillion ($44.1 billion).

Kenya would not, however, earn the whole amount when production starts, with a big percentage going towards production and shipping costs.

For instance, Tullow estimates that it will cost Sh373 billion ($3.4 billion) to set up a crude pipeline and processing facilities for the oilfields.

The firm is also entitled to recover its exploration costs from the crude sales, which further eats into the country’s earnings from the commodity. Countries with oil deposits periodically update the estimates of recoverable reserves as extraction technology evolves.

For instance, in the US, the development of better hydraulic fracturing (fracking) techniques targeting oil deposits deep underground have helped double the country’s oil production since 2006.

Fracking involves the injection of liquid and materials at high pressure to create small fractures within compact oil formations, which then allows for its extraction through conventional rigs.

Tullow added that it had made the higher estimates of extractable volumes due to a bigger facility processing capacity, additional wells to be drilled, and larger diameter crude oil export pipeline, which lowers the unit cost per barrel to $22 from $31 previously.

The firm said based on the new plan, it will be able to produce 120,000 barrels of oil per day up from an earlier estimated 72,000 barrels. Kenya has already tested the international market with shipments of crude.

Tullow has yet to develop the field for commercial production more than nine years after it first struck oil in Turkana, attributing the delay to factors such as unfavourable global oil prices since 2014, approval delays for land and water rights, a tax dispute and Covid-19 disruptions.

The firm and its partners in the project Africa Oil and Total had initially planned to reach a final investment decision in 2019 and production of the first oil between this year and next year.

Tullow has already presented the Kenya government with a draft comprehensive investment plan for oil production in Turkana, looking to beat a government deadline to do so by the end of this year or risk losing the concession.

Tullow expects the Ministry of Petroleum to peruse the plan and provide feedback before it presents a final plan by December.

Approval of the investment plan will see the firm kick off plans to build the infrastructure, including an 825-kilometre heated pipeline to evacuate Kenya’s oil.

“Tullow and its joint venture partners have worked closely together over the past year to reshape the Kenya Development. Through this work, we have made the project financially viable at lower oil prices and adjusted our plans to improve the environmental and social impact of the development,” said Tullow.

When a firm first wins an oil licence, it is typically given a number of years of exclusive rights to explore.