Kenya Pipeline Company (KPC) says it is upgrading its oil storage facilities to forestall fuel shortage and prepare for an oil boom in the region.
KPC Managing Director Mr Joe Sang said following the recent oil discoveries in the region and as Kenya prepares to make its first crude oil exports, it is prudent that adequate facilities for storage are in place.
The firm, which is tasked with the responsibility of transporting, storing and delivering petroleum products to consumers, has depots in Mombasa, Nakuru, Eldoret, Kisumu and Konza.
"Kenya has been losing transit business to Tanzania because of inadequate petroleum storage facilities and other supply chain challenges," Sang said.
"In addition, low stock cover days in the country leaves the country prone to shortages in the event of ships delaying.
"Adequate facilities would enhance the security of fuel supply, thus helping to avert any potential socio-economic and political crisis, and maintain a sustained path of high economic growth rates."
He added that KPC has a storage capacity of over 752 million litres (KPC – 612 million litres and the Kenya Petroleum Oil Refineries Limited (KPRL) plant – 140 million litres) spread across Kenya.
Sang explained that currently, an additional 133 million litres of storage capacity is now available in Nairobi with the completion of four new tanks for super petrol and diesel.
"Upon rehabilitation of the KPRL tanks at Port Reitz by end of June 2019, we will have another additional 100 million litres of storage capacity. This will enable the country to have adequate storage capacity hence remove ullage constraints and assure the country and the region of security of supply of petroleum products," Sang told Weekend Business.
He said KPRL has both storage facilities and grounds that will be used to increase the country's ullage (storage space) which will in effect create enough capacity for birthing vessels to discharge fuel into the KPC system.
"Over time, this will see Kenya save billions of shillings incurred in demurrage charges every year for fuel vessels docking at the port of Mombasa, a factor that could significantly reduce the cost of fuel," he said.
Sang noted that adequate storage capacity within the country's borders will ensure importation of economic cargoes of petroleum products leading to low freight charges as well as increased efficiency and operational flexibility of the oil pipeline.
He said studies showed that reduction of demurrage charges will impact positively on pump prices. Kenya incurs an average Sh70 million per month on demurrage charges. These demurrage charges are as a result of capacity constraints at Kipevu oil jetty and storage facilities at Kipevu Oil Storage Facility (KOSF).
Ship offloading takes between 72 and 89 hours for an 85000MT vessel at Kipevu oil jetty. This is coupled with ullage challenges at KOSF and mainline operation interruptions. As a result of this, vessels wait for longer periods to offload cargo.
And on Kenya's market share for motor fuel in the larger East African region, Sang said that out of the estimated 9.4 billion litres of motor fuels (super petrol, diesel) imported into the region (Kenya, Tanzania, Uganda, Rwanda, Burundi, DRC and South Sudan) in 2016/17 financial year, about 60 per cent was imported through the port of Mombasa.
Other than storage facilities domiciled within Mombasa, KPC has just completed putting up four oil storage tanks in Nairobi Terminal.
"This is a Sh5.3 billion project designed to enhance Nairobi’s petroleum storage capacity from the current 100 million to 233 million litres. The project cost was financed entirely from KPC’s financial reserves," Sang said.
The total storage capacity for the new tanks is 133 million litres (each tank carries 33.4 million litres) with construction by Prashanth Projects Ltd (PPL).
On March 7, 2017, KPC leased KPRL facilities to boost Kenya's storage potential. The facility had been shut down when Kenya stopped refining oil and opted to import processed petroleum products.
The MD said that through the lease agreement with KPRL, KPC now has a total of about 140 million litres of the active storage capacity comprising 92 million litres for diesel and 48 million litres for super petrol. He said the move has led to an increase in KPC's overall storage capacity by about 30 per cent.
The Kipevu Oil Storage Facility has a storage capacity of slightly over 326 million litres making it KPC's largest depot and carries super petrol, diesel and dual purpose kerosene (illuminating Kerosene and Jet A-1).
Sang revealed that KPC is in the process of rehabilitating KPRL crude oil tanks at Port Reitz in Mombasa and convert them to refined petroleum products use. The five crude oil tanks have a storage capacity of 100 million litres.
"The project is currently at tendering stage and once the process is over, we will know how much this whole venture will cost but we do hope that once the refurbishment is done, the new tanks will enable the country shore up its strategic petroleum reserves from the current low of 12 days to 30 days," he said.
On Early Oil Pilot Scheme (EOPS), Sang said their role is to receive and take custody of the crude oil from Turkana until it is exported by Tullow Oil.
"On the interim basis, we have set aside 3 crude oil fixed roof tanks in KPRL for this purpose with a total storage capacity of 42.9 million litres (each of the tanks carries 14.3 million litres). On June 7, 2018, we received the first batch of crude oil for storage," he said.
"KPC will also undertake modification of 3 crude oil floating roof tanks to maintain the crude oil at elevated temperature, modify the Kipevu jetty import equipment to allow for export and install a steam boiler for heating of tanks and pipelines in readiness for export."
