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Pilot Turkana crude exports fetched Sh3.6 billion, Opiyo Wandayi reveals
Cabinet Secretary of Energy and Petroleum James Opiyo Wandayi addressing the media during his tour of Muhoroni Gas Turbine (GT) Power Plant in Kipsitet on October 5, 2024.
Glencore Singapore Pte Limited and ChemChina UK Limited bought Turkana oil for $28.34 million (Sh3.65 billion at prevailing rates) under a scheme that was meant to test the appeal of the oil in the global markets.
Disclosures from the Ministry of Energy and Petroleum show that ChemChina bought 240,150 barrels while Glencore took up the remaining 174,627 barrels. Both deals were closed between 2019 and 2022.
Glencore is a Singapore-incorporated entity within Glencore plc, a global diversified natural resources company engaged in the production, processing, and marketing of commodities.
Tullow Oil exported the oil under the plan dubbed the Early Oil Pilot Scheme (EOPS) from June 2018 to 2020. EOPS was meant to test the competitiveness of Kenyan crude oil in the global markets, ahead of the start of commercial production.
EOPS laid the ground for Kenya to start commercial production of the oil wells, but funding hitches and delays in approving the commercialisation plan for the oil derailed the quest.
During the pilot, $62.73 million (Sh8.08 billion) was spent on drilling, storing, and transporting the crude oil, leaving Tullow and the government of Kenya in a net loss position.
“The revenue realised from the sale of crude oil was $28,340,340.45 against an expenditure of $62,726,205.36,” Mr Opiyo Wandayi, the Cabinet Secretary for the Ministry of Energy and Petroleum, says in the disclosures.
The government earned $1.915 million (Sh246.8 million) in royalties for the crude oil exports. Royalties are cash payments that oil exploration firms pay governments for the extraction of oil or gas.
Besides testing the global appeal of the Turkana oil, EOPS also provided critical data on the reservoirs and production models.
Commercial production of the Turkana oil was expected to start in 2020, but this was pushed forward as Tullow struggled to get financiers to de-risk the project.
Tullow was fully sold to Gulf Energy for $120 million (Sh15.47 billion) in September last year, ending its unsuccessful 13-year stay in Kenya.
Total and Africa Oil, former partners to Tullow in the Turkana oil, had exited the joint venture in May 2023, with both citing concerns on the commercial viability of the oil project.
The Ministry of Energy and the Cabinet recently approved Gulf’s commercialisation plan (Field Development Plan) for the Turkana oilfields. The plan is now awaiting a decision from Parliament before the end of next month.
Gulf targets to start commercial production on Block T6 (formerly 10BB) and Block T7 (previously 13T) by December this year.
An estimated 20,000 barrels per day (bpd) are targeted in the initial phase (2026-2032). This will then be scaled up to 50,000 bpd.
Kenya is seeking to follow in the footsteps of Uganda in exporting crude oil, as the two East African economies race to diversify their foreign exchange earners.
Gulf will truck the crude oil from the oilfields to the port of Mombasa for exports to refineries abroad, in a plan that will cut the initial costs of the project from the estimated $3.4 billion (Sh440.8 billion), easing pressure on an Exchequer.
Kenya has earlier planned to build a crude oil pipeline from South Lokichar to the port of Mombasa with the Exchequer expected to foot the costs of building the 892 kilometre pipeline.
Delays in constructing the pipeline had been cited as a possible hurdle that could derail the Kenya oil dream underscoring why opting for road transport could help Kenya avoid the delays.
The combined costs of trucking and rail transport in the two phases is estimated to be $5.32 billion (Sh685.75 billion at prevailing exchange rates), according to Gulf’s FDP.
The FDP further shows that 600 trucks will be deployed daily in phase one and 155 rail wagons daily when the production is stepped up in phase two.
The commercially viable oil in South Lokichar was discovered in 2012 but funding hitches and failure to clear the FDP scuttled efforts to fast-track commercial production.
