Kenya’s Early Oil Project FID Could Be Out This Week

The South Lokichar final investment decision on the early oil project by block operator Tullow Oil could be out by Wednesday as the company releases the 2016 Half Year Results.

Tullow Oil had in May through their director of government, public affairs and communications Anthony Mwangi said that the decision would be out either between the months of June and July ahead of the planned exports through road and rail in July 2007.

The project which many experts expect will be loss making going by the current oil prices according to Tullow Oil would enable the country acquire knowledge on how to access markets with factors such as refineries to be contracted to refine the waxy oil once full production commences.

“Projected breakeven price for the blocks in Kenya previously ranged between USD 37/bbl and USD 42/bbl but in light of emerging information, break even prices could be in the range of USD 45/bbl – USD 49/bbl,” according to a new report by KPMG.

According to parties involved in the project Kenya will star by transporting 2000 barrels a day to Mombasa where it will be stored at the now shut down refinery until it accumulates to about 600,000 barrels after which it will be shipped out.

To date contractors to be involved in the road transportation have not been identified although Maersk which is also a joint venture partner in the blocks as well as a renowned logistics provider is thought to be a front runner. Damco Kenya, Maersk a fully owned onshore logistics subsidiary could play an important part on the road transport while Maersk participate in shipping.

It is estimated that the transportation by road and rail will cost the country around $18 per barrel while the pipeline tariff is estimated at $12.94 according to regional consultancy firm KPMG. A joint pipeline by Uganda and Kenya was estimated to cost the latter just $7.70.

“In many ways, for Kenya forging ahead separately is nearly inevitable because undeveloped petroleum reserves are not quite as useful to a nation seeking to achieve double digit GDP growth along with significant improvements in access to public goods and services. But the economics have to work,” the report says.

The early oil project is however tentative as it will play a temporary part before the country completes its pipeline from the South Lokichar fields to the Lamu port via Isiolo expected to come on-stream by mid 2021.

The pipeline will be heated to 80 degrees will run underground from the Lokichar oilfields to the Kenyan coast before being transported for loading using an 8 kilometer underground pipeline offshore.