The heavy burden of trucking crude oil to Mombasa

Sometime in 2016, the Kenya Civil Society Platform on Oil and Gas (KCSPOG) sent a questionnaire to the then Ministry of Energy and Petroleum seeking answers on various issues regarding the newly launched early oil pilot scheme (EOPS).

In one of the questions, KCSPOG sought to know whether the transportation and production costs were recoverable, and if not, who was going to take the responsibility of bearing the costs?

Mandarins at the ministry responded with a plain assertion that “the costs incurred are costs recoverable.”

With the rolling out of the EOPS early last month, the cost implications of the scheme, which only the government, British firm Tullow Oil and its joint venture partners Africa Oil Corp of Canada and Total of France seem to understand, hover large.

Tullow is spending Sh1.5 billion in over five years to pay companies transporting crude oil to Mombasa before a pipeline is completed in 2022, but the breakdown of the payments and shareholding of the three companies is a closely guarded secret; so much that even Petroleum Cabinet Secretary John Munyes is in the dark. “I don’t know how much Tullow is paying. It has a contract with the companies,” he said. The companies are Oilfield Movers, Multiple Hauliers and Primefuels Kenya.

SPENT SH13 MILLION

Tullow did not respond to our questions on the scheme.

Nation has learnt that Tullow spent Sh13 million in organising the commissioning of the scheme in Lokichar, which was presided over by President Uhuru Kenyatta on June 3.

Dubai-based El Mansoura Petroleum Company is also being paid Sh1 billion for supplying temporary equipment that connects all the 40 wells that Tullow has drilled to enable to it hit the daily target of extracting 2,000 barrels of crude for the EOPS. When the scheme was halted last month after residents protested demanding enhanced security in the area, only 600 barrels were being ferried daily.

Tullow has also contracted consultancy firm EMC Consultants to undertake the environmental and social impact assessment for the scheme.

“This is a logistically difficult operation to execute, with the many political interests. It’s rationale beyond what the government is saying is difficult to comprehend,” said an expert in a leading research firm on condition of anonymity.

Studies in mature oil and gas markets like the United States with enviable infrastructure show that it costs four and three times more to transport a barrel of crude by truck compared to pipeline and rail respectively.

STRUGGLING FOR BUSINESS

On average, it costs about Sh2, 000 to transport a barrel of crude oil by trucks compared to Sh1, 200 by rail and Sh500 by pipeline. Why the oil cannot be transported by rail for some distance at a time the standard gauge railway is struggling for business and the meter gauge railway from Nairobi to Eldoret remains underutilised is yet to be explained.

Last week, Mr Munyes said operations in Lokichar and the trucking of oil would resume this week. “We are signing a return-to-work formulae with stakeholders and mobilising staff to get back to Lokichar to set up the systems and resume operations,” he said. Employees of Tullow and the crude transporting firms have since refused to return to Turkana for fear of their safety, forcing Tullow to consider shutting down operations.

“Based on the current inventory estimates, essential supplies necessary to run Kapese Integrated Operation Base will run out in the next 14 days after which we will have no option other than a complete shut-down of the camp.

HUGE LOSSES

This will further delay resumption of crude oil trucking by about two months,” said Tullow Kenya Managing Director Martin Mbogo.

The grounding of the trucking is already amounting to huge losses totalling Sh200 million in one week alone, and they could hit Sh1.6 billion if normal operations take eight weeks to resume.

In the wake of the scheme being halted, Tullow is demanding assurances that its business will not be interrupted. “We are working hard on reaching an agreement that will make sure our operations will not be interrupted in the future. Discussions are ongoing, and we are optimistic that we will be able to start crude oil trucking again soon,” noted Mr Mbogo.

According to KCSPOG Chair Odenda Lumumba,, Kenya will only manage to reap optimal benefits from its oil reserves if the operators and the government comply with extractives related legislations.