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Thursday, May 09, 2013

Kenya, Tullow & Oil

An interesting comment by Aidan Heavey [if quoted correctly] in reference to oil Tullow discovered in Kenya.

“If local roads were improved, Tullow could start producing from Kenya now, possibly trucking crude to the refinery in Mombasa,” Mr Heavey told Bloomberg at the side line of the company’s annual general meeting held in London Wednesday.

This is good news for Kenya since it means oil production (Twiga-1 and Ngamia-1)can start sooner than the projected 5-7 years. It may not be in large quantities at first but increase if (& when) additional wells come on-stream.

What makes sense for Kenya is to mandate [within the context of an equitable and transparent contract] the explorers like Tullow to build out the infrastructure. Whereas it may take some time for the Government of Kenya to get its act together to construct a road, the chances that Tullow will make it happen within a (much) shorter timeframe are much better. Tullow has a vested interest in building a good quality road to start trucking the oil to the Mombasa refinery.

The cost of construction can be paid from the proceeds due GoK from the sale of the crude oil and should be covered in the contract referred to earlier.

Apart from the proceeds from the sale of the oil, there are other benefits that accrue to Kenya(ns) as the transfer of skills starts early as do programs to train Kenyans in Oil Production Technology. The need for 'Roughnecks' will increase as more oil wells come on-stream & starting production in 2013-14 allows for many young Kenyans to get practical training in the industry.

Building a road (today) from Turkana to Mombasa requires labor & cement which is in plenty (excess capacity) in Kenya thus providing a welcome boost to the economy. Waiting for a debt-laden GoK to build the road may take a while.

Some may argue a pipeline is the better option but a road is required to open up Turkans so why not start with the Tullow Road while the plans, financing & installation of the pipeline is implemented?

Is anyone in GoK listening?

Sources:
http://www.nation.co.ke/business/news/Kenya-ready-to-produce-oil-now/-/1006/1846570/-/13ojlfu/-/index.html

http://citizennews.co.ke/business/2012/national/item/10259-tullow-oil-to-increase-oil-exploration

10 comments:

bankelele said...

Interesting. The drive through Western, through Northern Kenya is one that needs an upgrade. While rehabilitation work has been ongoing for the last few years, an upgrade to dual carriageway (for Central Africa transporters) and a bypass around towns like Eldoret should be brought forward

Kungui said...

Good point CT. Yes......we at GOK (read dark forces) are listening. How do you expect us to make 10% cut from road construction if Tullow builds it? Nkt! Thanks for highlighting this though......now we have a reason to ensure the inefficiencies become institutionalized! Yours faithfully Darth Vader

coldtusker said...

@bankelele - The road has to be 'commercial grade' not what we are used to. It has to carry heavy loads to/fro from Mombasa. If the road is built, I expect Tullow to use it to ferry equipment to the site/s & the road would open up new markets in the area. A bigger play is using it to export goods to northern Uganda & South Sudan. Perhaps even oil from Uganda to Mombasa. What about South Sudan's oil?

@Kungui - LMAO, bure kabisa!

eric said...
This comment has been removed by the author.
eric said...

I think a main upgrade should be on the eldoret-kitale-lodwar road- which i think has been contracted. Instead of trucking all the way to Mombasa though, and we know how much traffic they cause on our roads, a better idea would be to fix the road Kitale-Kapenguria-lokichar-Lodwar road, rehabilitate the Kitale-Eldoret railway then use trucks to Kitale and rail to Mombasa.

coldtusker said...

@eric - You make valid points. The Eldoret-Kitale-Lodwar 'upgrade' has to be commercial grade with a concrete/cement road that can bear heavy trucking. Other feeder or parallel roads can be built to accommodate 'lighter' traffic especially agricultural products. Eventually, there has to be an inter-connected network of roads that opens up the country.

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Anonymous said...

Shouldn't they be building a pipeline instead