Kenya Government to Invite Bids for Sh255 Billion Crude Oil Pipeline

Kenya is set to invite international bids for the design and construction of a crude oil pipeline linking the oil fields in Turkana and the Port of Lamu.

In the first acknowledgement by a government official, Energy Secretary Davis Chirchir said the country’s oil resources have attained commercial thresholds and that it was time the country started preparing infrastructure ahead of commercial production, hopefully in three years.

“We already have commercial quantities (600 million barrels per day) out of seven wells. We are, therefore, moving ahead with plans to begin production,” Mr Chirchir told the Sunday Nation in an interview.

“We will soon call for expressions of interest in the project. We are looking at

prospective investors to submit engineering, procurement and construction (EPC) models as well as their financing arrangements,” he said.

The plans by the ministry of Energy and Petroleum got a boost after Uganda signed a memorandum of understanding with Britain’s Tullow Oil, France’s Total and China’s CNOOC last week in a significant step towards launching oil production in the country.

The Kenya pipeline is expected to cost about $3 billion (Sh255 billion) and would be laid along the Lamu Port-South Sudan-Ethiopia Transport (Lapsset) corridor from Lamu to Turkana. It will be linked to the Uganda oil fields and later extended to South Sudan and Ethiopia.

An elaborate development plan prepared by the Energy ministry shows that production is likely to begin during the 2016/7 financial year.

The pipeline is in the pre-development phase, and its export capacity and length will be determined from the design proposals to be forwarded by the pipelineengineering construction firms.

But government officials have ruled out any chance of the existing prospectors building the line.

“With commercial reserves, Tullow may need to reduce its interest and allow other players to develop the pipeline,” said an official at the Energy ministry.

Construction was expected to begin by the end of 2013 once feasibility studies contracted to ILF Consulting Engineers, a German-Austrian company, have been completed.

This could mean South Sudan’s expectation of transporting its oil through the pipeline could become a reality if construction begins immediately.

However, energy sector experts who have welcomed the developments would prefer a private sector-driven deal with government approval to ensure speedyconstruction.

“We understand the final investment decision on the pipeline will be made at the end of 2015. When infrastructure is committed by oil production companies, it moves very fast as it is part of monetising investments returns,” said an analyst who declined to be named because he is involved in the project as a consultant for the government.

“The design of the pipeline will detail the maximum and minimum capacity for the line. It will also include pumping stations,” he added.

As most of Kenyan and Ugandan crude is waxy, there are two exceptions: a heatedcrude oil line or a line with in-built flow improvers. All seven successful wells are found in one field, and each new field within the basin will require a gathering station to connect several scattered wells to a common point. Pre-treatment points are also needed to clean up the crude and flow improvers, according to sector analysts.

As to why a pipeline for crude rather than for finished products, the government may be seeking to reduce costs. In some places the practice is that the initial infrastructure is built and owned by the government.

“Crude oil is faster to market over white products. It costs about $5 billion (Sh425 billion) to build a refinery and a similar amount for a pipeline from Lamu to Juba,” the analyst said.

Uganda has agreed to build a pipeline that would run to the yet-to-be-built Indian Ocean port at Lamu which is expected to become an export terminal for crude from Uganda, Kenya and other regional states.

Toyota’s construction subsidiary, Toyota Tsusho Corporation, is among firms that have drawn up preliminary designs for the project, with several components in addition to the pipeline.

In mid-January Tullow Oil said it was discussing an export pipeline with the Kenyan government following the discovery of commercially viable oil deposits.

The oil explorer then said the the northern Kenyan sites could eventually lead to production levels in excess of 1 billion barrels of oil. The company said it expects the Kenyan government to sanction the project by 2016 at the latest.

“Given the significant volumes discovered, Tullow and partners have agreed with the Government of Kenya to commence development studies [for an oil pipeline],”the company said while announcing new finds at Amosing 1 and Ewoi 1 wells, the seventh successful discovery in a campaign that has yielded a 100 per cent success rate. The company said it expects the Kenyan government to sanction the projectby 2016 at the latest.

In the case of Uganda, which has an estimated 3 billion barrels of crude oil, building pipelines and a refinery, and based on flow rates for oil fields, developing Uganda’s oil fields and building infrastructure would cost between $15 billion and $22 billion.

Story By Daily Nation

Author: Samuel Kamau Mbote

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