Kenya has won a major diplomatic battle against neighbouring Tanzania after Uganda announced it would ship out its early crude oil exports through Mombasa port.
The decision puts Uganda on course to becoming the first East African nation to export crude oil and marks a big diplomatic win for Nairobi, which has been feeling lonely after Uganda opted to team up with Tanzania in the construction of a pipeline to export its oil.
The Uganda National Oil Company (Unoc) in January invited bids from freight operators to haul its initial consignments of crude oil that was produced during well testing of the Albertine Graben oilfields. “The Unoc intends to dispose of 45,211 barrels of test crude in the Albertine Graben,” the State-owned company said in a notice that requires investors to issue a bid security of $10,000 (Sh1 million).
The bidding window closed on Friday and will be followed by evaluation and award of contract at the end of next month — paving the way for the trucks to hit the road.
The decision has put Kampala in competition with Nairobi for East Africa’s first petrodollars.
Uganda’s decision to use the Mombasa port for its early oil shipments comes two years after it abandoned Kenya in the planned construction of a joint crude oil pipeline through Kenya’s Northern Corridor. The pipeline was to run from Uganda through Kenya’s Lokichar basin in Turkana to the proposed Lamu port.
Kenya opted to forge ahead with the plans to build the Sh210 billion pipeline that covers the 865 km between Lokichar and Lamu.
It is understood that Uganda chose Mombasa for its early exports due to the shorter distance and availability of port infrastructure for loading oil on to ships.
“Transport to Mombasa will be all road. The shippers are looking at Mombasa,” officials said.
“The crude has been in ISO (International Organisation for Standardisation) tanks for years and has been kept in 3,000 containers.”
This means 100 trucks will be required to move out the oil in 30 days.
The ISO certified tanks are built in such a way that they can fit on trucks, rail or ship for transport.
Uganda’s oil, much like the Turkana crude, is waxy, meaning it will be transported in heated containers to keep it less sticky.
Based on the prevailing global crude prices of about $60 per barrel, Kampala looks set to earn about Sh271 million from the small-scale exports meant to test acceptance of its crude in the global market.
The early export plan comes ahead of the capital-intensive full field development phase that involves pipeline construction and plans to build Uganda’s first refinery. Uganda struck commercial oil reserves ahead of Kenya in 2006 but production has delayed partly due to taxation wrangles and difficulties in field development, including construction of a pipeline.
Its oilfields hold proven reserves of 6.5 billion barrels, while Kenya’s Turkana fields hold 750 million barrels of recoverable oil.
The Ugandan oilfields are jointly owned by French major Total, British explorer Tullow, and China’s CNOOC while Turkana’s Lokichar basin is owned by Tullow, Canadian firm Africa Oil and Danish firm Maersk.
Total has announced plans to acquire Maersk’s stake in Kenya, positioning it as the dominant player in the region’s extractive hydrocarbons.
East Africa is seen as a hydrocarbons province, with Uganda and Kenya having struck oil deposits while Tanzania has huge reserves of natural gas and helium.
Exploration is ongoing in the Turkana basin, meaning Kenya’s proven reserves figure is likely to cross the one billion barrels mark.
Tullow initially struck oil in Lokichar, and has since followed it up with a string of other finds, putting the country on the path to becoming an oil producer.
East Africa’s largest economy last July delayed a plan to start small-scale crude oil production of 2,000 barrels per day for transportation to Mombasa by road and loading on ships for export. This would be followed by commercial production and exports after the pipeline is completed in 2021.
The country is banking on oil exports to earn the much-needed petrodollars it hopes will help stem the rising tide of public debt that stands at half the gross domestic product.