Refinery to be used as storage facility for crude oil

Kenya Petroleum Refinery Plant in Mombasa
The fate of Kenya’s oil refinery has been determined.  Kenya Petroleum Refineries Limited plant, (the only refinery in the region) will be converted into a storage facility as the country gears up for commercial oil production. The decision is part of recommendations contained in a report by an inter-ministerial committee formed last July to review how best to utilise the idle refinery. The report will be released later this week to the Energy and Petroleum Cabinet Secretary Charles Keter.

The committee is comprised of members from the Energy and National Treasury ministries and various government departments. The team was tasked with coming up with a business model and recommendations on how best to put the refinery into good use.

Earlier last week, Mr Keter told a local newspaper that the government “is considering converting the refinery into an oil storage facility ahead of commencement of production of the country’s first oil”.

However, the current storage capacity is estimated to last the country only seven days. There is thus a dire need of a strategic petroleum reserve. This means that should something occur curtailing supply of fuel, a crisis can be experienced in the country which will negatively impact on road and air transport.

“We are fast-tracking the issues concerning the refinery in the light of the government trying to look into best models in terms of commercialising our oil. One of our key areas is KPRL and we’ve had a meeting with them and soon you’ll hear from government,” said Mr Keter.

The government had initially anticipated September 2016 as the date when the first crude out of Kenyan ground would be shipped to international markets, using road and rail networks, with an initial 2,000 barrels per day being produced before ramping up production to 10,000 barrels per day. This plan now appears to have been pushed to next year as government and oil exploration companies read from different scripts.

In a recent update, Tullow Oil, which together with its partner Africa Oil Corporation is responsible for most of the crude discoveries in the country said that it would make a final investment decision (FID) on the Kenyan project in 2017, given the current crude oil market turmoil. .

Crude prices are currently averaging $30 a barrel having plummeted from the high global prices enjoyed before June 2014.

There are fears that the low prices will continue this year as additional production from Iran is expected however, the reverse  may happen if  the ongoing negotiations between members of the Organisation of Petroleum Exporting Countries (OPEC) regarding reducing supply is successful.

Tullow said in its latest update that it can only break even producing oil at a cost of $25 a barrel. With the current global crude oil prices, this would mean it would be viable to produce oil in Kenya, resulting in razor thin profits.

KPRL shut down operations in September 2013 following a disagreement between the government and India’s Essar Energy who were the two main shareholders.

Cabinet has since approved a $5 million payout to Essar to pave way for revival of operations at the Mombasa-based facility, either wholly owned by government or through a joint venture.

The closure of KPRL has seen the country rely purely on imported petroleum products, whose price comprises the cost of refining crude, thus denying local consumers the benefits of low fuel prices at the pump.

Mr Keter said the government is keen on having Kenya Pipeline Company (KPC) take over management of the refinery.

KPC is primarily tasked with ensuring adequate storage for petroleum products and seamless supply system.

“We are streamlining the pipeline. We want the business environment in Kenya to be very competitive and transparent. That is the bottom line,” said Mr Keter on the sidelines of a workshop held on Wednesday for oil and gas exploration companies organised by the ministry.

Source: All Africa

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