Inside Politics

Uganda, TZ beat Kenya in oil race

Tuesday, April 13th, 2021 00:00 |
Analysts say they don’t see Lokichar as a viable resource now, unless the price of oil trades sustainably above $75. Photo/PD/Courtesy

Kenyans will have to wait longer before they join the league of oil exporting countries as neighbouring Uganda and Tanzania match ahead with the signing of a $3.5 billion (Sh374.8 billion) pipeline deal.

The slow of progress saw the government demand that British explorer Tullow Oil offer an investment plan for Turkana oil fields by December, or risk losing licenses to explore blocks 10BB and 13T in the Lokichar basin.

Last year, the London Stock Exchange-listed firm said intended to make a final investment decision (FID) on its South Lokichar oil project in Kenya in 2022 and to start production in 2024, in an implementation programme presented to the government in November.

But as it stands, the troubled British explorer struck oil in Lokichar basin nine years ago but is yet to develop the Turkana fields for commercial production, as concerns over the project’s viability increase.

The firm has cited global oil prices, approval delays for land rights, tax disputes and the Covid-19 pandemic as part of the challenges.

In its annual report for the year to December 2020, the firm said it had written off $430 million (Sh46.8 billion) in exploration costs, blaming low global oil prices.

“I don’t see Lokichar as a viable resource now, unless the price of oil trades sustainably above $75 (Sh8,036.2) per barrel,” said investment advisor Ally-Khan Saatchu, adding that Tullow needed to draw Total and China National Offshore Oil Corporation into the game.

“Clearly that has not happened and with Total choosing the Tanzanian route to the sea, even the Lamu story has some serious challenges,” he said.

Energy and Petroleum Cabinet Secretary John Munyes has said Kenya will soon be in the market for a Sh500 million private public partnership (PPP) to finance the country’s development of infrastructure from Lokichar to Lamu.

The cash will be used to construct a pipeline, storage facilities, and upgrading the refinery facilities in Lamu and Mombasa, to eliminate crude oil transportation using trucks from Turkana to the coast. Addressing the Senate Committee on Energy Munyes said at the country has a weak midstream which cannot deliver the project.

Strong infrastructure

“Currently we need a lot of money to build the infrastructure, that is, a pipeline, a refinery and the central processing facility.

And it is not only for the Turkana discoveries…currently we plan to start off-shore drilling in areas of Kwale and Lamu by Eni Group company an Italian company and the progress is on …and when that comes we will need a very strong infrastructure.”

“We will need the pipeline, storage facilities, proper refineries, run down the water from the Turkwel River down to Lokichar, Turkana, to push the oil from the ground in what we call the central processing facility that’s why we have invited the private sector,” the CS said.

Tanzania scored a major economic goal against Kenya, over the weekend, following the signing of the East African Crude Oil Pipeline (Eacop) with Uganda on Sunday.

The $3.5 billion (Sh374.8 billion), 1,445-kilometre Eacop project will earn Tanzania $12.7 (Sh1,360.3) off each oil barrel transported, and create an estimated 10,000 jobs during the construction phase, boosting income for the households along the pipeline.

“I suspect we rested on our geopolitical laurels and the centre of gravity for the East African oil and gas story has moved South for us, I am afraid,” said Saatchu.

Uganda declined to use the Lokichar to Lamu Port route four years ago, with Museveni citing huge cost, project delay owing to lack of roads, and the effect of monsoon winds, experienced thrice a year in the area.

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