RE: New focus on Kenya’s oil hub potential Full article:
New focus on Kenya’s oil hub potential
2 Oct 2012, 11.22 am GMT
London, Johannesburg, 2 October (Argus) – Kenya is attracting increasing interest as a potential oil hub for east Africa. But funding for the long-planned Lamu Port-Southern Sudan-Ethiopia Transport corridor (Lapsset) project is a key challenge.
“I think it is quite likely that Kenya will become the oil sector hub for the region,” said John Small, chief executive of the East African Association, a grouping of investors in the region.
“Potentially [Lapsett] is the largest infrastructure project in Africa,” said Small. “In my dealings here with the [UK] foreign office and in east Africa with the various donors and diplomatic community, there was a great deal of scepticism about Lapsset earlier in the year, but I think that position has changed as people begin to realise that it is perhaps becoming a reality.”
Lapsset has been promoted by the Kenyan government as a way to boost regional trade, and increase energy cooperation between east African states. It is part of the Nairobi government's economic policy planning policy to 2030.
Central to the Lapsset plan would be the export of crude from South Sudan through an approximately 2,000km-long pipeline to a new deepwater port at Lamu on the northern Kenyan coast near Somalia.
Lamu port could handle crude and refined product exports, including from Uganda.
A consortium of Total, Chinese state-owned CNOOC and UK-listed Tullow Oil will spend over $10bn to develop oil in the Lake Albert basin. First oil exports from Uganda are expected by 2017.
Lapsset's planners have also promoted the construction of a new oil refinery at Lamu or Isiolo in Kenya. Feasibility studies have started on the Isiolo scheme with an initial focus on a new 100,000 b/d capacity plant.
New Kenyan refining capacity would reduce the region's dependency on the current refinery at Mombasa, which is restricted to around 34,000 b/d, below its design capacity of 70,000 b/d.
The new Kenya refinery could refine crude exported from Uganda or from any commercial oil discoveries in Kenya.
UK-listed independent Tullow Oil put Kenya in the spotlight in March with its Ngamia oil discovery in block 10BB. Total and Italy's Eni are among firms that have since signed production-sharing contracts with the Kenyan government for blocks in the Lamu basin.
But funding challenges remain for the Kenyan and other regional governments to fully implement Lapsett. Full implementation costs are estimated at $24bn.
Regional political organisations including the African Union, Comesa, East African Community, the African Development Bank and SADC have given their support to the scheme.
The Kenyan government has also issued a tender to carry out initial port work at Lamu, which will increase its capacity to handle general cargo.
South Sudan has yet to formally agree with Kenya to export its crude through a pipeline. Uganda is also working on building its own refinery, starting with an initial 20,000 b/d plant to supply the local and regional markets.
South Sudan and Sudan, in August this year, agreed to resume exports from South Sudan. South Sudan shut down its entire crude production of 330,000 b/d in January as a dispute with Khartoum over how much it should pay to export crude through infrastructure in Sudan intensified. It was that cessation of production that threw Lapsset back into the limelight.
Managing director of Kenya's state-controlled NOC Sumayya Athmani said that a regional rather than national perspective is necessary if the economics of refining in east Africa are to stack up.
"As much as each of us would want to have a refinery, the challenge you then have from an import parity point of view is that you cannot compete with imported products. The little refinery we currently have in Kenya, for example, is still not competitive when you compare with imports from India for instance, despite the freight, despite the piracy activities, despite the additional insurance, despite the distance. Because you simply do not have economies of scale… ”
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