Was the Early Oil Pilot Export Scheme a PR Stunt?

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July 15, 2017

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Oil RigWhen British company, Tullow announced the discovery of oil in Kenya’s Turkana County in March 2012, we were elated at the remote chance of joining the leagues of oil exporting countries.

As my jubilant fellow citizens celebrated the find; international media celebrated with us — going by the headlines back then. “A new oil discovery in Kenya is ‘very encouraging indeed’ for its export ambitions,” read Quartz Africa’s headlines. “Kenya discovers first ‘major’ oil deposit,” chimed Aljazeera English.

Fast-forward to the present where it has been estimated that our recoverable oil reserves amount to 750 million barrels.

The Government of Kenya (GoK) had earlier this year announced that it would begin exporting crude for testing in the global market: a scheme dubbed Early Oil Pilot Scheme (EOPS).

The Scheme intends to move 2,000 barrels a day by road — a distance of about 1,000 kilometres from Lokichar to the existing port of Mombasa.

It is normal for a novel exporter to send crude to the international market so that the buyers familiarize themselves with its properties.

According to the GoK, the EOPS was schedule to have kicked off in June 2017.

However, at the tail-end of June, the Cabinet Secretary for Energy, Charles Keter held a Press Conference announcing the postponement of the plan by three months.

“We do not want to start the export without having a clear picture of revenue sharing, we have to wait for the Senate to be formed, hopefully, we start the export after the election and when we have a Senate to approve the Bill [Revenue Sharing Bill],” Keter told journalists on 29 June.

In a swift rejoinder, Turkana Governor Josephat Nanok accused the GoK of looking for scapegoats in the name of Revenue Sharing Bill.

“The national government is unprepared and they know it, road construction is still on-going, the Kainuk Bridge has not even started…Tell them to stop looking for scapegoats,” Nanok told journalists.

Media reports have emerged, however, indicating that infighting within the Ministry of Energy led to the suspension of the EOPS.

One faction was keen to gain political mileage (with elections being only a month away) by having EOPS underway via road before elections, while the other one largely advocated for the running of the pilot once the 900-kilometre pipeline from Turkana to the yet-to-be-constructed Lamu port, was concluded. Tullow, the explorers are caught in the melee.

“Tullow is technically ready. Transporters have been contracted; 50 trucks and 30 tanktainers have been mobilised,” the explorer wrote back.

I am no oil expert, but I know Matters Logistics. The danger posed by 50 trucks and 30 tanktainers plying our congested Kenyan roads daily ferrying the flammable liquid for 1,000 kilometres is astronomical.

That notwithstanding, considering the small volumes (2,000 barrels per day) of Kenyan oil reaching the international market and its novelty, the GoK will have to sell at a highly discounted price.

Considering that a barrel of crude is currently retailing at $46 as per the US benchmark, WTI crude, Kenya’s crude would be lucky to get priced close to $40 per barrel.

Logistically speaking, it would be more prudent to hasten the construction of the pipeline which will move around 100,000 barrels of oil per day.

With improved quantities, the country stands to reap from economies of scale in addition to keeping our roads safe.

The plan to ferry by road is not only too costly but too risky on our congested and poorly maintained roads.

It should also be remembered that Kenya’s crude although termed as “good” is also waxy and will, therefore, have to be transported at high temperatures to prevent solidifying.

PR stunt? Pretty much, if you ask me. But hey, you didn’t ask. So I didn’t answer!


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