Oil pipeline construction set to start mid next year

Welder mounts in the trunk pipeline electro-chemical protection

Construction of the crude oil pipeline between Turkana and Lamu is finally set start by June next year.

The project will take two years to complete, in time for the planned 2021 commercial production of oil.

The latter project got a major boost at the weekend after President Uhuru Kenyatta flagged off the first oil consignment under the Early Oil Pilot Scheme (EOPS).

Four tankers set off from Lokichar, in the heart of Turkana County, towards Mombasa where the oil will be stored in tanks awaiting export.

The Petroleum and Mining ministry said last week talks have commenced with international firms that are pitching to finance or build the pipeline.

Principal Secretary Andrew Kamau said the Government together with Tullow Oil and its joint venture partners in the Lokichar oil project - Africa Oil and Total - will in the course of the next year work through the details of the deal.

The ministry in March this year contracted Wood Group to design the pipeline, in what is referred to as Front End Engineering Design (Feed).

In addition to the shape that the pipeline will take, the Feed will also inform other aspects, including its cost.

Preliminary designs have shown that the the 892-kilometre pipeline will cost Sh100 billion, which is half of what had been estimated.

The lower costs are on account of Uganda withdrawing from plans to jointly build a pipeline with Kenya, which resulted in the reduction of the system’s diameter.

The Ugandan pipeline, which will now traverse Tanzania to Tanga Port, will cost Sh350 billion.

Various proposals

PS Kamau said the ministry is already in talks with several companies for both the design and financing of the pipeline and expects them to have reached a decision by mid next year and commence construction by end of the second quarter of the year.

By then, Kamau added, both Government and the joint venture partners will have decided what equity each will take in the pipeline project.

The balance will be financed through debt.

“We are talking to various internationally-reputed construction companies. We are looking at various proposals for both construction and financing. Once we understand what it looks like, then the rest of us can come in and say this is the kind of equity that we will be taking in this project and the debt structure and what it will look like,” he said last Wednesday at a press briefing on the EOPS in Nairobi.

“If we can conclude the agreements between the Government and the joint venture partners on the upstream and midstream sections, we should have that buttoned down before the end of this year because we need to start construction and Final Investment Decision (FID) by end of quarter two next year in order for us to be producing by 2021,” added the PS.

The pipeline’s building and maintenance work once effected is expected to bring about opportunities, but only a handful of Kenyans have the capacity to benefit.

Fledgling industry

According to the Morendat Institute of Oil and Gas, owned and operated by the Kenya Pipeline Company, only two Kenyans are currently certified as pipeline welders and can work on an oil pipeline.

The lack of capacity is despite the lucrative nature of careers in the fledgling industry, where a welder can earn as much as Sh100,000 a day.

Stephen Kuria from the Australian African Energy Institute, which is conducting the training for the 11 men and one lady set to join the trade, said that the welders will graduate in September after getting certification from the United Kingdom.

“There are only two welders certified in the country and this will give Kenya a boost. Uganda has also said it is interested in training about 2,000 of their own welders and we have tendered to train them,” said Mr Kuria.

The Petroleum ministry said it will exercise its buy-back rights in two of the Lokichar oil blocks by the end of the second quarter of 2019.

The Government plans to raise Sh1 billion through the dual listing of National Oil Corporation of Kenya (NOCK) at the Nairobi and London stock markets and use the proceeds to buy up to 35 per cent in blocks 10BB and 13T in Lokichar.

Kamau said the Government would exercise the buy-back at FID “which in all likelihood will be at the end of second quarter next year”.

At FID, the payers will decide how much investments they want to pump into the remainder of the project, paving way for the commercial development of the oil.

Phased development

“We have to exercise the buy-back rights at FID because at that stage, the project is sanctioned, the results are booked and you have a live project and all of us have to put our money in it. We will need to put in the money if we are going to have our back in tights and going to contribute to the development of the project,” he said.

Tullow Oil said it would lay the foundation for FID this year so that the decision is made next year for it to start delivering benefits, including oil revenue to the country as soon as possible.

“After over six years of hard work, we can now move forward to commercialising these low-cost resources through a phased development of the basin involving a central processing facility and an export pipeline to the Kenyan coast,” said the firm in its April report to shareholders.

“In 2018, we will focus on taking the project towards FID in 2019 with a prudent and flexible plan of execution that can take advantage of low oil services costs and deliver First Oil and cash flow as soon as possible.”  

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