Why Kenya might miss June deadline for first oil export

Besides hype and excitement, Kenya’s plan to export its first barrel of crude oil could be off to a slow start.

While the Ministry of Energy and Petroleum has set mid to end of June date for the flagging off of the ship that will export the first oil cargo and sustain the pilot until end of 2019, several factors are at play and could put a damper to the hyped Early Oil Pilot Scheme.

Such include the fact the amount of oil produced and ready for export is barely enough to fill up a vessel. This crude oil is still in Turkana and needs at least two months to move to Mombasa. Also Tullow Oil does not expect to produce more oil until later in the year and the country is yet to identify a buyer or a refining destination.

The crude produced by Tullow and its joint venture partners in the Turkana project is expected to start being moved anytime from now following selection of firms to offer transport. It is estimated that it will take 60 days to move the 60,000 barrels by road to Mombasa.

According to Tullow Oil, the trucks will deliver 1,000 barrels a day in Mombasa. Thus, if the movement of this crude started before end of this month, it would mean that by mid-June, just about half of this oil would have been delivered to Kenya Petroleum Refineries Ltd (KPRL) in Mombasa where it will be stored before being loaded to the ships for export.

Early Production Facility

Such an amount might not be significant enough to compel a buyer of the crude to hire a ship to move the commodity to a refining destination.

Tullow will also not start production until later in the year. The firm in a statement last week said the pilot project would be undertaken in three phases. The first phase would entail the evacuation of the already produced oil which would take place over the next two months.

The second phase would be the construction of a production facility in Lokichar that is set to begin in July and the final phase, which is production, will start towards end of the year.

“Phase three, from fourth quarter of 2017 and continue until quarter four of 2019, will see the Early Production Facility (EPF) produce 2,000 barrels of oil per day that will be transported to the port of Mombasa for a period of approximately 24 months,” said Tullow.

This means that for the better of this year, only 60,000 barrels of oil already produced from the Turkana fields will be available for the country to export. This is barely enough to fill up one modestly sized ship. Smaller vessels on average carry about 100,000 barrels of oil and this usually makes economic sense when it is over a short distance.

Over long distance, as is the case with the Kenyan oil whose likely destinations are either China or India, large vessels are usually ideal and vessels with a capacity of half a million and more are usually preferred.

The Ministry of Energy is, however, confident that the Government and the Lokichar joint venture partners will be able to beat the June export deadline as well as sustain exports during the June to December half of 2017.

The Ministry of Energy Cabinet Secretary Charles Keter said there are tankers designed to carry relatively small amounts but declined to say the frequency at which such ships will leave Mombasa. “There are vessels that can carry smaller quantities... we do not need the large types at the moment,” he said.

“As for how frequently we will see a ship leave Mombasa, there are different factors that will be at play so we cannot say we will have a ship once a month or one every two months,” Keter told Weekend Business.

He also said the oil is yet to get a buyer and the Government is still in discussions with a number of interested companies in China and India. “We are still in talks with companies in India and China,” said the CS.

He added that the programme was critical for the full field development as it would enable the Government and the companies working in Turkana understand how the market reacts to the crude oil.

Keter also said the Government would not sell some 400,000 barrels that have been lying idle at KPRL for about four years, which while not owned by the Kenyan Government could have complemented the oil from Turkana and made it attractive, at least to the buyers of the initial cargo.

The crude was imported before KPRL quit its refining function and started operating as a storage facility. Oil marketing companies were then required to import a portion of their products in crude form for refining at KPRL, which was a sort of protection mechanism that kept the archaic facility afloat. After the shutdown, the crude that had not been processed has remained at the facility.

“We cannot touch that. That belongs to different industry players and is part of KPRL’s liabilities which we have contracted an auditor to look into... it will not be part of what we will export under the early oil scheme,” said Keter.