Getting East African oil to market: pipeline update, and road pipe dreams

East Africa

Published on Wednesday 24 February 2016 Back to articles

In reality, Ugandan authorities – and President Museveni himself, the ultimate decider – will have been paying the issue little attention in recent weeks due to elections. Kenya’s President Uhuru Kenyatta may have wanted to bring Museveni back to the issue with his effusive congratulations for the Ugandan president’s victory.

A strong lobby remains for the Kenya route. At the announcement of Tullow Oil’s end of year results there was, of course, no mention of a southern route at all, even the southern Kenya route.

Tullow also remained ambiguous about a possible date for project sanction. Last July the firm spoke of late 2016 for Kenya, and in October they spoke of ‘early 2017’. Now it is ‘some way off’ according to Chief Operating Officer Paul McDade with no capex predicted for Kenya through 2018.

Yet the company remained bullish, with the lowest projected break-even price for their East Africa projects.

They estimate full cycle costs at US$25 per barrel, according to McDade, with Kenya a little above that figure and Uganda a little below. This contrasts with estimates as high as US$60 and as low as US$38 for their West African projects.

Pre-2014, such figures made sense. Now, a much lower breakeven point is required to keep the Uganda and Kenya projects tied together through a pipeline through Kenya.

Japanese interests are also pushing for a Hoima to Lamu pipeline. Toyota Tsusho, which prepared the feasibility study recommending the route, continues to back it publicly. Speaking to Kenya’s Daily Nation newspaper last week, the head of their Pan Africa Regional Office, Kenji Suzuki, recognised Uganda’s preference for Mombasa if there is to be a Kenya pipeline, but argued land compensation costs would be too great.

More broadly, Japan sees Kenya as a strategic ally in Africa. A Japan-Kenya business conference was held in State House in Nairobi last August.

The following month President Kenyatta met with Prime Minister Shinzo Abe of Japan at the United Nations in New York, and announced that the first Japan-Africa Summit would be held this year in Nairobi.

Yet any discovery of oil on the Democratic Republic of Congo side of Lake Albert may tip the balance towards a southern route via Tanzania. Last week Total announced that it is to collect 300 kms of 2D seismic data in Block III. The target area is the northern part of the block, in the southern waters of Lake Albert.

But who needs East Africa’s pipeline? Judging from remarks made at last week’s Governors Summit, the option of trucking crude oil out by road is on the agenda of Kenya’s State House.

The director of the president’s Delivery Unit, Nzioka Waita, spoke of road upgrading from Lokichar to Eldoret to allow crude oil to be evacuated first by road, and then by rail from Eldoret. He said he expected it to be ready in ‘twelve to sixteen months.’

Developments about East Africa’s pipeline for crude oil export project are covered across numerous issues of East Africa Politics & Security.

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