Major Kenyan Oil Pipeline Project Facing Delays

(P&GJ) - Project Oil Kenya, a $3 billion oil project in Kenya which includes a $1 billion pipeline, began facing delays almost immediately after it was approved in June, according to a report by Petroleum Economist magazine.

Near the end of June, the government of Kenya and three oil players including France’s Total, Tullow Oil, and Africa Oil reached an agreement to begin development on Project Oil Kenya, a multi-billion dollar upstream and midstream project to help restart the country’s oil industry. The day after the agreement was announced, the project began to face delays.

As initially reported by Petroleum Economist, the heads of terms (HoT) agreement covered the financial and commercial principles and responsibilities for developing several discoveries near Lake Turkana, near the Ethiopian border. This would include a $1.8 billion processing facility capable of handling up to 100,000 bpd of oil and a $1.1 billion, 500-mile pipeline to a planned export terminal on the northern coast.

Everything covered under the HoT is necessary before a final investment decision (FID) can be reached. On June 26, the day after the HoT was signed, the government of Kenya announced it was postponing the FID until 2020.

Tullow Oil stated in an operational update on 26 June that "despite this progress, the Partners and the Government of Kenya are reviewing the most likely timeline to FID which Tullow now expects in 2020".

FID Delay

Tullow cited government setbacks in securing land and water rights for the processing facility and pipeline as one reason for the delay.

It also stated that Kenya's National Environment Management Agency (Nema) had requested additional community consultations as part of environmental and social impact assessments. These will be submitted in the second half of 2019, which was "later than anticipated," according to the firm.

The project had met opposition from communities in the Turkana region over the revenue sharing arrangement and possible environmental issues, such as depletion of the area's scarce water resources to supply the project.

Initial obstacles

The project has already faced difficulties during the Early Oil Production Scheme (EOPS) which involved extracting and trucking small quantities of oil to an export terminal in Mombasa in order to test the market for the country’s low-sulphur crude.

In August 2018, the project was temporarily delayed by community protests. Although production during the EOPS has already reached 2,000 bpd, the company is not expecting to begin exports until 2023 at the earliest.

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