Kenya now plans to link its Turkana oil fields to Dangote’s East African refinery in Lamu via a new pipeline, making the country’s crude a key raw material for the Nigerian billionaire’s project.
A senior economic adviser to President William Ruto has confirmed plans to revive the pipeline project, which was previously abandoned over doubts about securing funding.
The government had sought to extend its metre gauge railway (MGR) to South Lokichar at an estimated cost of Sh220 billion to truck the country’s crude by rail to the port of Mombasa in the absence of a pipeline.
The decision to transport the crude to the port via rail came before Dangote announced his plan to build a Sh3.1 trillion ($24 billion) oil refinery in Lamu, where the Nigerian billionaire broke ground on September 30.
President’s Council of Economic Advisors Chairman David Ndii said the Dangote refinery had revived plans to build the pipeline from Turkana to Lamu.
“What this now means is that it now [the Dangote refinery] makes a pipeline bankable,” Dr Ndii said on Tuesday.
“We see the Dangote refinery unlocking the Lapsset [Lamu Port-South Sudan-Ethiopia-Transport] corridor.”
Gulf Energy, the company licensed to produce oil in Block T6 and Block T7 in South Lokichar, is set to resume drilling this month, ahead of producing Kenya’s first crude on December 1.
The first exports of Kenya’s crude are targeted for March next year where trucks will initially be deployed in shipping the product to Mombasa for export.
Earlier, documents tabled in Parliament showed that 640 kilometres of the MGR would be constructed from Rongai in Nakuru to South Lokichar by December 2031, easing the evacuation of crude from January 2032 when daily production is ramped up.
The rail-road option was seen supporting production at the rate of 50,000 barrels per day (stb/d).
Kenya previously planned to build an 892-kilometre pipeline from the production fields in South Lokichar to the port of Mombasa.
Doubts about securing at least $1.5 billion (Sh193.87 billion) needed to fund the line and fears of delays in delivering the project forced a change in plan.
The construction of a heated pipeline to evacuate Kenya’s waxy crude is expected to support the increased production of Kenya’s crude to a peak of 100,000 stock barrels per day (stb/d).
“Production would have moved slowly because we were not sure about building a pipeline. We will probably ramp up production to 100,000 barrels per day in a year, which was not the case before,” Dr Ndii said.
Last month, Kenya kicked off the search for a trading name for its crude oil as the country prepares to export the commodity whose grade is considered cheaper to refine and cleaner.
The country expects to ride on the chosen name to market its crude oil, which has been described as light sweet (low sulphur levels), making it cheaper and cleaner for use in producing gasoline (petrol), diesel and jet fuel.
For the Dangote refinery, Turkana oil is expected to be one of multiple sources of crude.
The government sees construction of a network of product pipelines coming from the Dangote refinery, including a line to Ethiopia.
“We want to build routes to markets including a product pipeline to Ethiopia and others going to other markets,” Dr Ndii said.
The Kenya Pipeline Company (KPC) is expected to play a crucial role in the construction of the pipeline infrastructure.
Mr Dangote acquired a 24.99 percent stake in KPC, and committed to spend Sh195 million to expand the firm’s pipelines.
The Lamu refinery cost is expected to reach up to Sh3.1 trillion ($24 billion), including the cost of infrastructure like port, pipelines and water Sh519.8 billion ($4 billion) and downstream industries, also expected to cost Sh519.8 billion ($4 billion).
The refinery is expected to generate revenues of up to Sh3.9 trillion ($30 billion) per year, increasing the share of Kenya’s manufacturing by up to four percentage points.
The sale of products from the refinery is expected to fetch foreign exchange for Kenya, while the country is expected to save on foreign exchange as part of the products from the Dangote refinery are sold in the local market in shillings.
Mr Dangote has a similar arrangement in Nigeria where commodity sold in the domestic market is priced in Naira, a move supported by its Lagos refinery sourcing its crude feedstock from the country.
The foreign exchange impact from the project has been estimated at Sh1.68 trillion ($13 billion), including Sh1.16 trillion ($9 billion) net exports and Sh519.8 billion ($4 billion) in forex savings from forgone petroleum imports.
This suggests that output from the Dangote refinery can cover up to 89 percent of Kenya’s demand for fuel and lubricants.
