Kenya Is Worried Lamu Investment Will Go Up In Smoke - Africa’s premier report on the oil, gas and energy landscape.

Kenya Is Worried Lamu Investment Will Go Up In Smoke

French major TOTAL is the main backer of the Uganda-Tanzania pipeline route
By Saad Bashar, Dar es Salam

Kenya is hoping that Uganda will choose the pipeline route from Hoima to either Lamu or Mombassa, as the latter evaluates options for  “the least cost route” to export its heavy crude.

But the French major TOTAL, an equity partner in the three Ugandan acreages ripe for development, is backing the Ugandan government in choosing a route through the Tanzanian port town of Tanga. TOTAL considers the Hoima-Mombassa or Hoima-Lamu route to be mountainous and as such expensive. It favours the rather flat land route from Hoima to Tanga. The company is the third leg of three equal partners which include Tullow and the Chinese behemoth CNOOC, but it appears more invested in choosing the pipeline route than the other partners. TOTAL has said publicly that Final Investment Decision for the Ugandan oil development will be taken around 2017.

“The route through Kenya is the one we have always known,” Hudson K. Adambi, senior principal  superintendent geologist at the Kenyan Ministry of Energy and Petroleum, said at the Africa Oil Week Conference in Cape Town last month.

“We are still evaluating the routes and the least cost route is what we will consider”, Fred Kabagambe-Kaliisa, Permanent Secretary at the Uganda’s Ministry of Energy and Mineral Development declared at the same conference.  The two men addressed the conference back to back and it was clear they were arguing. When asked if TOTAL was the one urging the government to consider the Uganda-Tanzania route, Mr. Kaliisa told Africa Oil+Gas Report: “We will take on board any concerns by our partners.”

Two months after the presidents of Kenya and Uganda inked an agreement that many thought was a go ahead for construction of a pipeline to ferry Ugandan crude through Kenya, the Ugandans signed a similar agreement with Tanzania.

Uganda is landlocked; it has to evacuate its crude oil, when developed, through a port town on the edge of the Indian Ocean. Kenya and Tanzania both have such coastal facility.

With crude oil found in commercial quantities in Kenya in the last three years, and operated largely by the same company, it had been widely assumed that an evacuation pipeline originating from Uganda will link up with one that collects Kenyan crude with both crudes heading for a Kenyan coastal port. That port town is either Lamu or Mombassa, both relatively old towns on Kenya’s  southeastern coast.

The agreement signed by Presidents Uhuru Kenyatta and Yoweri Museveni on August 8, 2015, anchored on a 1,500 km pipeline from Hoima through Lokichar in Kenya’s border region with Somalia, required guarantees from the Kenyan government regarding security, route optimization and financing. The heated oil export pipeline will have a capacity of 300,000 barrels of oil a day with two pumping stations in Uganda and three in Kenya. The proposed infrastructure includes three storage depots:  a 127000m3 facility at Hoima (Uganda), a 63,000m3 depot at Lokichar (Kenya) and a 190,785m3 terminal in Lamu Kenya.

Although the Uganda-Tanzania agreement, signed on October 14, 2015, was at a lower level than the Museveni-Kenyatta agreement, it was enough to create concerns in Kenya. It involved the Ugandan and Tanzanian energy ministries, Tanzania Petroleum Development Corp as  well as TOTAL E & P Uganda, the local subsidiary of the French major, a leading supporter of the Tanzanian route to market. “The (agreement) creates a working framework for the potential development of a crude export pipeline from Hoima to Tanga Port of Tanzania,” the Ugandan Ministry of Energy said in a statement.

The Kenyans had looked forward to Ugandan crude passing through the country, even before Kenya encountered crude oil of its own. The Lamu corridor project is one such that has in mind a possible crude oil pipeline route. But the Ugandans say they want value. “As a country”, the energy ministry statement said, “we are evaluating the routes with the idea that we have the least-cost route. We would like to ensure that our crude oil has value.”

There have been delays in government granting a go-ahead for full development of Uganda crude, but most of the parties are looking towards full-scale commercial production to take off in 2020, when a domestic refinery and an export pipeline are expected to be in place.

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