Uganda's oil find changes balances for Kenya’s pipeline

Oct 23, 2007 02:00 AM

The pattern of trade between Kenya and its key partner, Uganda, is set for a drastic shift following the discovery of petroleum deposits in the neighbouring country.
For several decades Kenya has heavily relied on petroleum to consolidate its export earnings from Uganda, a position that analysts say is now in danger -- at least in the long term. Though, not a producer of oil, Kenya has been importing crude for processing at its Mombasa-based refinery and onward export to Uganda and the wider Great Lakes region.

"Discovery of crude oil in Western Uganda will certainly change the supply pattern in the region," Mr George Wachira, the general manager at the Petroleum Institute of East Africa (PIEA) told.
Statistics from the Kenya Pipeline Company (KPC) show that in 2006 alone, Kenya exported 1.3 bn litres of petroleum to Uganda. This was, however, much lower compared to the previous years export volumes following Uganda's decision to directly import refined petroleum products rather than rely on the Mombasa refinery.

KPC said plans are under way to seize new business opportunities that may arise from discovery of oil in Uganda. This means that the company may have to put up a new pipeline connecting the oil fields around Lake Albert to the refinery in Mombasa.
"It all depends on whether the developers decide to put up a refinery in Uganda. We are ready to partner in putting up a new pipeline for the crude as long as there are surplus volumes," Peter Mecha, the operations manager at KPC, said.

The refined oil would then be pumped back to Uganda and other markets through the existing pipeline.
"The two pipelines would work in reciprocation with one moving crude top the refinery while the transports refined products to inland markets," said Mr Mecha.
KPC runs a 450 km-long pipeline system with a flow rate of 440 cm per hour running from the coastal town of Mombasa to Nairobi. It also has another 446 km long pipeline with a flow rate of 160 cm per hour from Nairobi to western Kenya.

The Governments of Kenya and Uganda however plan to extend the existing Mombasa-Eldoret oil pipeline to Kampala through a project which entails installation of an 8-inch diameter, 320 km long pipeline from Eldoret to Kampala with an annual capacity of approximately 1,200,000 cm. The project is being promoted as a public-private partnership (PPP) with the private investment partner playing a leading role. The two governments shall own 24.5 % each of the equity based capital of the project and the private sector shall be the majority shareholder owning at least 51 % of the equity.
"The options open to Uganda are pushing crude oil through a new pipeline to the coast for export or refining at Mombasa, or constructing a local refinery in Uganda. The latter option is a more likely scenario," said Mr Wachira arguing that developing a new refinery infrastructure in Uganda could take a shorter time than having a pipeline to Mombasa.

The two explorer firms -- Heritage and Tullow have already indicated that they may pump oil via a pipeline to the Kenyan coast, should they find more than 300 mm barrels of crude from the Albertine basin. The discovery of crude in the Lake Albert region, that lies on the border of Uganda and the Democratic Republic of Congo (DRC), by two explorer companies -- Tullow Oil and Heritage Oil -- puts pressure on the upgrading of the oil refinery in Changamwe to cater for extra volumes of crude.
The refinery is expected to be upgraded beginning December at a cost of Sh 22 bn improve its crude capacity by between 70 and 85 %. Currently the facility handles 70,000 barrels of crude per day and 30,000 tons of gas. Ugandan authorities have allocated Tullow three blocks for exploration of which two are in an equal partnership with Heritage.

So far the firms have successfully drilled eight wells within the blocks that have yielded crude with estimations that all the wells could provide an excess of a billion barrels of oil. Analyst said this development would greatly reverse the direction of trade between the two countries should Uganda opt to trade in its oil.
Over the past few years the value of trade between the two nations slumped by about Sh 15 bn with statistics obtained from the Kenyan Trade and Industry ministry showing that the country's exports to Uganda slumped to Sh 7.8 bn in 2006 compared to Sh 42.7 bn that was landed in 2005.

Source / Business Daily
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