Experts pour cold water on local crude oil refinery

President Uhuru Kenyatta and Deputy President William Ruto at the flagging off of crude oil ...
President Uhuru Kenyatta and Deputy President William Ruto at the flagging off of crude oil for exportation in Turkana. PHOTO| PSCU

The first 600 barrels of crude oil from Lokichar in Turkana is expected in Mombasa on Thursday.

But as the refinery is being spruced up for storage, the facility will not process the oil.

According to experts the evacuation is not only important but inevitable in Kenya’s journey to becoming an oil producing country.

SpringRock Energy country manager Ogutu Okudo said the current Kenya Petroleum Refinery Limited (KPRL) facility runs on outdated technology and machinery and currently couldn’t handle the production capacity being eyed by oil exploration firm Tullow.

“If you look at the plan on what Tullow wants to produce we are looking at eventually 150,000 barrels a day and the refinery currently can’t take up that amount, and the storage too can only take up 90,000 barrels of oil a day,” Ms Okudo said in an interview.

An estimated 2,000 barrels of oil is being transported daily to Mombasa.

The process will continue until the stockpile hits 400,000 barrels, enough to fill up oil ship that would eventually export the commodity.

But as Kenyans expectations continue to grow over joining the league of oil producing countries, many have questioned why the government is not focusing on refining its own oil.

Patrick Obath, an oil and gas expert said given Kenya’s estimated crude oil find of 750million barrels, it is currently not economically viable to locally refine the oil.

“If you look at an economical size of a refinery at this time, it shouldn’t only make petrol and diesel it has to make chemicals pharmaceutical and all those end products not middle products like gasoline and diesel,” Mr Obath said in an interview.

According to Mr Obath, if a modern refinery was to be set up locally, Kenya would need to collaborate with Uganda, and South Sudan to produce between 300,000 and half a million barrels of oil daily to economically qualify a regional facility.

“It has to be an East African refinery to get right the economies of scale, otherwise a small refinery will create employment etc but the cost of product coming out of that will be one and a half times to twice the cost of an equivalent product imported from the Middle East,” he said.

President Uhuru Kenyatta flagged off the first four trucks transporting crude oil to Mombasa on Sunday as part of the early oil pilot scheme (EOPS).

The pilot phase is being as a trial run to ascertain the viability of the local crude and source potential export markets.

The government has been quick to mute Kenyans expectations of generating revenue from EOPS, even as Tullow Oil is set to make a final investment decision (FID) in 2019.

“We can definitely expect to have some income out of this but it’s also important to manage the expectations. It’s important to ensure we have the right institutions in place, the right oversight and the right people negotiating these deals. If the capital gains tax in favour of your people or more in favour of the exploring companies,” Ms Okudo said.

While Kenya may be making the right moves towards joining the global oil market the task ahead is to ensure the economy doesn’t fall into the oil curse trap that has engulfed many African nations.

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Story By Patrick Igunza
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