The Government is expected to award the contract for the design of the planned 892-kilometre crude oil pipeline between Turkana and Lamu July this year. The route will enable Kenya export oil on commercial basis.
The firm is expected to start works later this year, while the construction will commence in 2018. It will be completed around 2020. The Ministry of Energy and Petroleum said it would award the contracts for environmental audit in the course of July.
The award of contract design of the pipeline, referred to as Front End Engineering Design (FEED), and the Environmental and Social Impact Assessment will help brighten the prospects for the industry, which were dampened last week.
This was after the Ministry postponed Early Oil Pilot Scheme through which Kenya was to start exporting oil on a trial basis starting June.
The Cabinet Secretary (CS) in the Ministry of Energy Charles Keter said the postponement of the pilot scheme was due to lack of a regulatory framework. However, observers point out that other factors such as insecurity along the route to be used to transport the crude as well as areas near the oil fields in Lokichar may have been a key factor.
Keter last week said contract negotiations are currently taking place and would be concluded in the coming days. The contractors will undertake an environmental audit and design of the pipeline that would be unveiled in July.
“What we want is to award contracts for Environmental Impact Assessment and in preparation for the award for the contract to construct the pipeline… We will do this anytime from now, maybe within a month,” he said last week.
Keter noted that the Ministry is negotiating an agreement for the development of the pipeline with the three companies that are involved in the exploration of oil in Turkana.
The Joint Development Agreement between Kenya and the joint venture partners – Tullow, Maersk and Africa Oil – was expected to have been signed by December 2016 but has faced delays.
The Ministry has in the past said it needed time to consult internally, including with the Attorney General, as well as seek external legal counsel so as to get the best deal for the country.
The CS on Thursday last week said Ministry of Energy officials are in London negotiating the agreement with the joint venture partners.
The Joint Development Agreement sets out the ownership structure for the pipeline as well as the roles that the different parties will play in the construction of pipeline, including resource contribution. “We are finalising the Joint Development Agreement and we have a team in London negotiating,” said Keter.Tullow Oil last week said it expects the process to start towards end of this year.
In its half-year operational update, the firm said studies that would inform the design of the pipeline were already underway.
“In addition to the drilling and operational activities to support the First Investment Decision for the Kenya Full Field Development, engineering studies and contracting activities are under way in preparation for the start of FEED, which is expected to commence in late 2017,” said Tullow in the report.”
“In parallel to the upstream development work, the Joint Venture Partners and the Government of Kenya continue to progress commercial and finance studies for the proposed export pipeline, and preparations are under way for the Environmental and Social Impact Assessment.”
The planned award of contracts for the design of the pipeline and environmental and social impact audits for the pipeline come on the back of a late May agreement signed between Uganda and Tanzania for the development of a 1 400 kilometre pipeline from Western Uganda through to Tanga Port.
The agreement was signed by energy ministers from the two countries.
Kenya and Uganda had initially agreed to construct a crude oil export pipeline jointly running from the oil fields in Hoima, Western Uganda through Turkana and into Lamu.
Uganda however negated on the deal, preferring to use the Tanga route, particularly after French oil major Total offered to finance the pipeline through Tanzania. At a meeting in Tanzania in May, Ugandan President Yoweri Museveni and his Tanzanian counterpart John Magufuli faulted Kenya’s land tenure system that allows buyers to acquire land for speculation, noting it would have made the construction of the pipeline expensive and the reason why Uganda had opted to route its pipeline through Tanzania.
However, Total, which has a 50 per cent stake in the Western Uganda Oil Project, has been seen as having played a critical role in persuading Uganda to ditch Kenya.
The firm had expressed concerns about security along the Kenyan route as well as the proximity of Lamu to Somalia. The Hoima-Tanga pipeline is projected to cost (Sh400 billion) $4 billion and will pump 200 000 barrels of oil per day.
Analysts have cast doubt on the viability of separate pipelines. A Bloomberg report in March this year noted that the Kenyan pipeline seemed economically viable when Ugandan oil was going to flow through it.
With the two countries going separate ways and hence each pipeline carrying less oil than planned and global prices remaining weak, the report notes, the economics will continue to cast a shadow over the development of the sector.