Uganda exit raises cost of pumping oil from Lokichar to Mombasa by 68pc


Geza Ulole

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Uganda exit raises cost of pumping oil from Lokichar to Mombasa by 68pc
oilrig.jpg

A Tullow Oil oil rig in the Lokichar basin, Turkana County. A joint crude pipeline running the 1,300 kilometres from Hoima through Lokichar to Lamu would charge a lower tariff of $7.70 (Sh770) per barrel, the analysis shows. PHOTO | FILE

In Summary

  • The analysis, compiled by regional consultancy firm KPMG, shows that pipeline tariff will rise to at least $12.94 (Sh1,294) per barrel if Kenya builds its own pipeline.


The cost of moving crude oil by pipeline from Lokichar to Mombasa seaport is set to go up by 68 per cent after Uganda pulled out of a joint infrastructure deal with Kenya, a new technical report shows.

The analysis, compiled by regional consultancy firm KPMG, shows that pipeline tariff will rise to at least $12.94 (Sh1,294) per barrel if Kenya builds its own pipeline.

A joint crude pipeline running the 1,300 kilometres from Hoima through Lokichar to Lamu would charge a lower tariff of $7.70 (Sh770) per barrel, the analysis shows.

In March, Uganda pulled out of the joint crude pipeline deal with Kenya and signed a deal with Tanzania to route its exports through Tanga port. The move by Uganda followed months of concern over security, land acquisition, inflation of costs, and Kenya’s ability to deliver the project on time.

“This situation (building own pipeline) precisely reflects the inefficiency of a zero sum world view,” KPMG says in its analysis.

“Forging ahead separately is nearly inevitable because undeveloped petroleum reserves are not quite as useful to a nation seeking to achieve double digit growth… but the economics have to work.”

The analysis, titled East Africa Regional Cooperation in Oil and Gas: Possible Reality? shows that shipping oil through Tanga would cost Uganda 36 per cent more, Sh1,130 per barrel, compared to Sh830 per barrel that the landlocked state would pay by routing it through Kenya.

As a result of the increased shipping charges, KPMG says, Kenya’s crude must be sold at a higher export price of between Sh4,500 and Sh4,900 per barrel to make economic sense.

Before Uganda’s pull out it was estimated that Kenya’s oil business could break-even at relatively lower export prices of between Sh3,700 and Sh4,200 per barrel.

Going it alone also cuts the expected rate of return on Kenya’s oil from 13 per cent to 10 per cent.


Under the two scenarios, however, Uganda remains the overall loser as its break-even point rises to an export price of at least Sh5,100 while the expected rate of return shrinks to 10 per cent, down from 13 per cent in a joint deal with Kenya. That means Uganda would make a loss at yesterday’s Brent crude price of Sh4,764 per barrel.

Kenya has since signed a joint crude pipeline deal with Ethiopia. It also hopes to tag South Sudan along since it has shown willingness to invest in a pipeline connection through Lokichar to Lamu Port or to the Port of Djibouti through Ethiopia.

“In the case of pipeline infrastructure, the benefit is in creating a network that would allow shared costs among users,” KPMG says.

As the regional pipeline takes shape, Kenya hopes to transport the first 2,000 litres of its crude by trucks and trains to an export terminal in Mombasa.

The move is part of the Jubilee administration’s race to get Kenya’s crude in the market before the General Election scheduled for August next year.

omondi@ke.nationmedia.com

Uganda exit raises cost of pumping oil from Lokichar to Mombasa by 68pc
 
eliakeem

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eliakeem

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Duuu, this sounds bitter to our northern neighbor.
 
Passer by

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Passer by

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Kwa kweli, 254's,wataisoma.
 
Geza Ulole

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Geza Ulole

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Wameghairi kujenga bomba, wanasafirisha kwa malori
 
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Dhuks

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If you guys were literate enough you would have realized that the bigger loser is not Kenya but then the sycophancy levels would not allow it
 
Geza Ulole

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Geza Ulole

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If you guys were literate enough you would have realized that the bigger loser is not Kenya but then the sycophancy levels would not allow it
how? R u better informed than Nationmedia?
 
eliakeem

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eliakeem

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But why dont Kenyans connect theirs to the one from Homa to Tanga. I think they have to revisit their plan, using lorries is not viable at all.
 

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