Kenya to make Sh3b loss from early crude oil exports, warns report
SEE ALSO :Crude oil touted as health curePlan shelved This initial plan, however, appears to have been shelved after the Ministry of Energy hinted at change of plan and that the oil may be transported by road all the way to Mombasa, further pushing up the costs. But according to the Kenya Civil Society Platform on Oil and Gas (KCSPOG), these volumes are too low to make any economic sense at this initial stage of oil resource extraction. “In the absence of a significant increase in either oil price or export volumes, the Early Oil from Turkana is a money-losing venture,” Mr Charles Wanguhu, the KCSPOG coordinator said when launching the report analysing the costs and benefits of the early oil pilot scheme. The Government had last week admitted that the country’s venture would be profitable if crude oil prices are above $55 a barrel. Andrew Kamau, Principal Secretary at the State Department of Petroleum said the country will begin small exports of crude for a pilot project next summer, but acknowledged that the State does not expect the venture to generate profits.
SEE ALSO :State pushes back early oil export dateKenya has an estimated 750 million barrels of recoverable reserves in onshore fields but lacks a pipeline to transport its crude from the arid northwest to an export terminal on the east coast. According to the report, road transport will be more expensive and suggest that the Government would rather wait until the pipeline is complete. The Government estimates to spend Sh200 per barrel more on road transportation costs alone than if it was on pipeline. “Our estimates show that the costs will be much higher,” he said. Some of the costs include Sh220 per barrel on leasing the isotainers, a special containers used in transporting oil. Road transport will also attract Sh1,050 per barrel compared to rail transport, which will cost Sh650 for every barrel moved to the port. There will also be another Sh225 cost on storage for every barrel. At the end of the scheme, the Government, according to the KCSPOG is looking at transporting about 900,000 barrels of oil. This will see the overall costs stand at Sh6.3 billion. With oil prices at Sh4,600 per barrel, the total revenue will be Sh3.4 billion. This translates to a loss of Sh2.9 billion. Assuming that the country fetches the best prices of Sh5,600 per barrel, which is unlikely, given that the Turkana oil is waxy and will be sold at a discount price, the revenues will increase to Sh4.3 billion. Political mileage But even with this revenue, taxpayers will also be staring at a loss of Sh2 billion. “The scheme may also prove a distraction from the long-term benefits of working towards full field development and a pipeline from Lokichar to the coast,” he said.
There will also be logistical risks as the route chosen is complex and untested besides the risk of transporting inflammable cargo by road.
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