BLOW

Uganda's exit from pipeline project slows Kenya's oil export hopes

Presidents Yoweri Museveni and John Magufuli meet in Chato, Tanzania on Sunday

In Summary
  • The two countries had in 2015 agreed to jointly build the oil pipeline
  • Investors in the Turkana oil project are pegging their investment decision on the completion of the pipeline
In image provided by Serengeti Watch showing the three possible route of the oil pipeline. The shortest route passes through the endangered Serengeti Park.
In image provided by Serengeti Watch showing the three possible route of the oil pipeline. The shortest route passes through the endangered Serengeti Park.

Kenya will now have to bear the full cost of the delayed Lokichar-Lamu crude oil pipeline after Uganda, which ditched the project in 2016 opted for the Tanzania route.

The move by Uganda further jeopardise Kenya's hope both for the oil pipeline, blurring the country’s dream for oil cash.

Last weekend, Uganda President Yoweri Museveni and his Tanzanian counterpart John Magufuli officially signed a $3.5 billion (Sh378 billion) deal that will see the Kampala route export its oil through Tanzania’s 1,445-kilometre crude oil pipeline.

 
 

Uganda said it dropped Kenya after it realised it would be cheaper using Tanzania's Tanga port.

It added that the Kenyan route would delay the project, as it lacked roads and was always affected by monsoon winds for up to three months annually.

Kenya and Uganda had in August 2015 agreed to jointly build a 1,500-km (930-mile) pipeline to pump oil from Uganda to the Indian Ocean

The line was to cut through northern Kenya and the Lokichar Basin from Hoima in western Uganda before reaching the port city of Lamu.

An alternative route had the pipeline snaking through Kenya’s capital of Nairobi and on to Mombasa, a plan that Uganda said would be cheaper, but would have required displacing hundreds of residents.

Last year, Kenya was presented with two designs for the Lokichar-Lamu crude oil pipeline (LLCOP) with a price variation of $122.2 million (Sh12.9 billion)

This after British firm Wood Group completed the front-end engineering design (FEED) that shows Kenya can opt for a pipeline with onshore storage facilities that would cost $1.2 billion to construct or one with floating storage facilities at a cost of $1.1 billion.

 

Both the FEED and the environmental and social impact assessment (ESIA) studies were to ensure the project does not encounter environmental-related obstacles from environmentalists.

Even so, Kenya’s National Environment Management Authority (NEMA) has been holding on environmental and social impact assessment approval, delaying commercial production of crude oil in the Lake Turkana Basin.

Investors the Turkana oil project by Tullow Oil is tying the final investment decision on the construction of a Sh121.45 billion pipeline between the Lokichar onshore fields and Lamu, which is now set to be completed in the second half of 2023 and not June 2022.

In December last year, Nema welcomed public opinion on the proposed pipeline in Turkana, Samburu, Isiolo, Meru, Garissa and Lamu counties.

Last month, Canadian-based Africa Oil Corporation (AOC) said it was short of funds to complete ground activities at its South Lokichar Basin, Turkana County, further complicating Kenya’s chance to taste oil money.

In February reports indicated that Tullow and Total were looking for ways to sell down their stakes in the Kenyan project as part of the restructuring plan.

The British oil firm is frustrated by FID on Kenya, which has been postponed severally due to stalled issuance of an environmental impact assessment license.

The company had previously aimed to give the final go-ahead by the end of 2019 for its onshore Kenyan oilfields, which are expected to produce up to 100,000 barrels per day.

It had expected to start production of oil by 2022, which was pegged on getting investment commitments from each partner this year.

The official exit by Uganda from the oil pipeline project is likely to dent investors ' decisions in the Turkana oil project, dimming Kenya's hope for oil cash.