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Economy

Pipeline works to delay oil export boom till 2023

Andrew Kamau
Petroleum Principal Secretary Andrew Kamau. FILE PHOTO | NMG 

Kenya’s long awaited oil billions will begin to trickle home after President Uhuru Kenyatta leaves office with the release of a new production timetable.

The full commercial production schedule is tied to the construction of a Sh121.45 billion pipeline between the Lokichar onshore fields and Lamu, which is now set to be completed in the second half of 2023 and not June 2022.

Mr Kenyatta, who is expected to exit in August 2022 at the end of his second term, has been keen to have Kenya join the ranks of oil exporting countries before the end of his term.

Promoters of the mega pipeline, which will traverse more than five counties, have now sought approval from the environmental watchdog for construction of the 800-kilometre long pipeline.

Petroleum Principal Secretary Andrew Kamau said Wednesday that the tender for the construction of the pipeline would be concluded in the second half of 2020, meaning it can only be ready in the second half of 2023.

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“We can conclude the award to the EPC (engineering, procurement and construction) contractor in the second or the third quarter of next year and begin construction then. The timeline given in the assessment is just an estimate and we may find a contractor who can do it even much faster,” Mr Kamau said.

The report to the National Environment Management Authority (Nema) shows that the pipeline’s construction will last 38 months.

The crude oil export has been a central theme in the Jubilee administration’s manifesto since it came to power in 2013.

Since last year, Kenya and Tullow Oil have been running a pilot scheme to transport some 2,000 barrels per day by truck to the port city of Mombasa to test flow rates and other technical issues before the start of full production and exports via a pipeline. The government and a group led by explorer Tullow Oil picked trading company ChemChina UK Ltd to buy its first shipments.

ChemChina UK’s initial purchases are expected to be small-scale, with full commercial shipments due to begin once the pipeline is constructed.

Mr Kamau said Kenya will own a 25 percent stake in the pipeline with Tullow Oil, Africa Oil and Total each taking a similar stake.

British firm Wood Group Plc has presented two designs for the Lokichar-Lamu crude oil pipeline (LLCOP) project with a price variation of around Sh10 billion.

Kenya is expected to make a decision by mid-January 2020 to pave the way for the construction.

The project is currently at the pre-Final Investment Decision (FID) stage, with the EPC tendering process ongoing. The final investment decision is expected by June next year.

With land acquisition currently being handled by the National Land Commission (NLC), and approval of the Environmental Impact Assessment (ESIA) by Nema expected by the end of March next year, the project will be ready for launch.

According to the design documents, Kenya can opt for a pipeline with onshore storage facilities that will cost Sh121.45 billion to construct or one with floating storage facilities at a cost of Sh111.33 billion.

In the two options, the designs show that construction of the onshore pipeline will cost Sh57.50 billion and Sh16.64 billion for pump stations, with the variation mainly being in the marine terminal set to be built in Lamu, which will cost Sh14.77 billion for onshore and Sh4.55 billion for floating storage.

The FEED study shows that Kenya’s pipeline will have a flow rate of 65,000 barrels of oil per day (bopd) and an expansion case of up to 80,000 bopd instantaneous flow.

In terms of pumping stations, Garissa County will have the highest with six stations gobbling up to Sh2.69 billion, followed by Samburu with five stations worth 2.63 billion, then Turkana and Lamu with two jointly costing Sh1.27 billion. Isiolo and Meru will have one station each costing Sh1.65 billion.

The design also shows that the pipeline will cut across Turkana, Samburu, Isiolo, Meru, Garissa and Lamu, mostly sticking to government land to prevent huge payouts in land compensation.

Tullow estimates that Kenya’s onshore fields in Turkana hold 560 million barrels of oil and expects them to produce up to 100,000 barrels per day from 2023.

The government has already signed agreements with oil major Total, Tullow Oil and Africa Oil Corp to develop a 60,000-80,000 barrels per day crude processing facility.

In February, the government said the crude oil deposits discovered so far in Kenya were insufficient to justify the construction of a refinery.

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