Why State’s rushed crude oil export project missed target

The realisation that Kenya will not export its first batch of oil in April has cast the spotlight on a pilot scheme dogged with controversy since the State bulldozed its intention to exportcrude oil without the necessary infrastructure and policies in place.

In a rush to export crude oil, the government overlooked some of the challenges that could have arisen along the way. This, in addition to a two-month standoff between the State and the Turkana community in August last year due to the lack of a Memorandum of Understanding have come back to haunt the government.

Understandably, Tullow Oil that has been leading the exploration and drilling of crude in Northern Kenya, was for a long time not committed to the push by the state to rush the oil process but the state had its way.

The chicken have now come back home to roost with the announcement by Tullow that it has only transported 80,000 barrels of crude to Mombasa. This is just 20 per cent of the required 400,000 barrels of oil that is needed to fill the first ship of crude for the maiden lifting.

“The transfer of stored crude oil from Turkana to Mombasa by road continues as part of the Early Oil Pilot Scheme (EOPS) with an average of eight trucks being dispatched every two days, transporting approximately 600 barrels per day,” said Tullow in its status update of January.

The government had projected to send 2,000 barrels of oil to Mombasa every day but from Tullow’s admission, it is only doing 25 per cent of what is required leaving questions on what exactly could be the problem.

“The challenge was when the operation stopped for 58 days in Turkana,” Petroleum Principal Secretary Andrew Kamau told Sunday Standard referring to July and August last year when no oil left the fields for two months after locals blocked the roads.

Still, that does not explain why Tullow is only trucking 600 barrels instead of the required 2,000 daily as projected. What is clear is that it is not the first time the EOPS has been forced to push forward the date of the maiden oil sale for one reason or another.

Recruit external law firm

The government has also pushed forward the construction date of a crude oil pipeline from 2022 to 2025 further compounding the challenges facing the country’s oil exportdreams. Construction was supposed to start in June after preliminary designs by British company Wood Group showing the 892 kilometre pipeline will cost an estimated Sh100 billion. Part of the reason why construction of the pipeline will not start in time is a standoff between the Treasury and the Ministry of Mining over a Sh30 billion loan supposed to be borrowed for a security system to guard the pipeline.

While the oil docket was still at the Energy ministry, a commercial contract was signed between ministry officials and Israeli security systems company Rafael Advanced Defence Systems Ltd that could have made securing the pipeline a third of the total construction cost.

An oil pipeline would enable Tullow to pump up to 80,000 barrels of crude per day. At the moment, Multiple Haulers EA Ltd and Oilfield Movers Ltd which were given the tender to transport the oil to Mombasa reportedly committed 30 trucks for the venture.

Each tanktainer can carry 130 barrels of crude which means that at full capacity Tullow should be able to transport 4,500 barrels of crude to the Coast. The government however argues that the 2,000 barrel per day mark will be attained in March once an environmental impact assessment test is done. “It is 600 barrels and that was the plan until new production starts in March. This requires National Environment Management Authority licence,” said PS Kamau.

The argument by government corresponds with Tullow’s assertion that all is going according to plan and Kenya is on the way to full scale exports by 2021 when a crude oil pipeline to Lamu from Turkana is completed.

“This will require several key milestones to be achieved throughout this year, including land acquisition, commercial frameworks and contract awards,” said Tullow.

On Wednesday, the government announced it will recruit an external law firm to help finalise an audit on the amount of money that Tullow Oil has spent on exploring for oil in Turkana County. It is expected that the external firm which will compensate for the lack of capacity by the Kenyan government to navigate the oil industry will help the Petroleum and Mining ministry avoid oversights that could become costly in future as the country becomes an oilexporter.