Kenya’s dream of exporting oil may go up in smokes on falling oil prices and delayed delivery of key infrastructure by the government, Tullow Oil Kenya has warned, citing rising costs.
The British firm said Kenya was slow in tendering for the upstream facilities and pipeline and acquiring access to land and water.
This has delayed the final investment decision (FID), which is the commercial agreement that it was to strike with Kenyan government before end of the year.
Reaching FID by end of 2020 was hinged on government facilitating access to land and water, constructing and handing over the Lamu Port berth and successfully tendering for construction of pipeline and other upstream facilities.
“This slow progress means that the target of reaching FID by year-end 2020 becomes more challenging,” warned Tullow in the latest annual report.
“Failure to achieve this may result in higher than anticipated costs leading to the project not being economically viable at current oil prices.”
The firm was favouring a price of $50 (Sh5,278) per barrel to make a good return even though a price of $34 (Sh3,589) was still viewed as good case for business, Tullow Oil Kenya managing Director Martin Mbogo had said last year.
However, prices have been on the decline, with Murban oil price being quoted at $22.84 (Sh2,410) per barrel at the end of last week. This is the lowest price in at least 18 years.
The current price is 33 percent below the least price that Tullow had factored in and now casts doubts on the ability of the company to export at a profit in the absence of very efficient infrastructure.
The government has on several occasions shifted the timelines within which Kenya is expected to be ready for full commercial exports as it dithered on delivering key infrastructure.
The first export of oil from Kenya was a cargo of 240,000 barrels in August last year. Kenya reported that it was in talks with 18 firms for its early oil.