By Alan Baguma
A proclamation that Kenya had joined the league of oil exporting countries, was made on 8th August 2019 by Uhuru Kenyatta, the Kenyan President. This was not without a generous dose of pageantry. The media was awash with videos of crude transportation trucks arriving at Mombasa, with a declaration of the USD 12 million consideration for the 200,000 barrels of oil sold. Excitement galore, as projections were made for prosperity and elimination of poverty.
Like clockwork, the expected comparisons between Uganda and Kenya have arisen. Questions have locally been posed as to why Kenya, which reportedly made commercial discoveries in 2012, has become an “oil exporter” before Uganda, which made commercial discoveries earlier in 2006, with first oil still pending and Final Investment Decision (FID) yet to be reached in Uganda. These comparisons are however misinformed, as I shall elaborate.
For starters, it is important to understand the circumstances under which the reported “oil exportation” in Kenya has been done. This has been pursuant to what is referred to as the Early Oil Pilot Scheme (EOPS) which aims at testing the viability of the South Lokichar field reservoirs in Kenya as well as the midstream systems in place, prior to FID and full commercialization of the field taking place. It also envisages the production of 2000 barrels per day over a two-year period.
In line with the EOPS, which commenced around June 2018, several barrels of test crude produced from well testing exercises dating back to 2015, were periodically trucked from the Lokichar wells to the Mombasa storage facility and stocked, until an optimum shipping target amount of 200,000 barrels was reached, and thereafter sold.
It should however be clearly understood that this is a pilot exercise and there has neither been a confirmation of full field development/commencement of commercial oil production nor full FID taken regarding the field, as several commentators in Uganda think. The project is at pilot stage and not at full commercial production and exportation stage.
Similarly, several well testing exercises have been conducted over the years in Uganda, generating substantial amounts of test crude oil that is in the process of being sold to earn revenue. This exercise like in Kenya, in no way amounts to full commencement of commercial oil production and exportation, with FID still pending.
The oil story in Uganda substantially differs from that in Kenya, and the circumstances in Kenya are convenient for such a pilot exercise to occur, given the relative convenience for transportation of the Kenyan sweet light crude from the field to the storage facility at Mombasa. This is not the case for Uganda which does not have such easy access to the coast for export but requires construction of the world’s longest heated crude oil pipeline to transport Uganda’s medium to heavy waxy crude oil to the coast.
Furthermore, even at the later stage of making a decision for full commercialization of the oil fields in question in Kenya or Uganda, considerations shall greatly vary. In the case of Kenya, FID for the South Lokichar field will be led by the operator, Tullow Oil Kenya. However, in Uganda, the FID will take into consideration two major fields, Tilenga and Kingfisher, which currently have three operators; Tullow Uganda (before the pending farm-down is completed), Total E & P Uganda BV and CNOOC Uganda. All three will have to take FID concurrently.
The requisite investments for full field development also substantially vary given the different capacities, with production expected to be up to 230,000 barrels per day from the Ugandan fields, and about 60,000 barrels per day for the Lokichar field.
Additionally, Kenya’s production shall not require the level of integration with other projects as is the case in Uganda. It has been reported that Kenya shall have no refinery owing to lack of sufficient proven reserves needed to make one viable, and the proposed export pipeline from the field to the coast is approximately 700 kilometers. This differs from the Uganda situation where upstream FID has to be closely integrated with the East Africa Crude Oil Pipeline (EACOP) project which covers a much longer distance of 1445 kilometers over two countries, making it more complex.
Uganda shall also have a 60,000 barrels per day capacity oil refinery in Hoima as one of the upstream off-takers. The magnitudes of investment and the considerations therefore greatly differ for the two countries, before a decision for full commercialization can be made.
It therefore follows that the apples and oranges comparisons between the two should be avoided as they are untenable. Consideration of prevailing circumstances is necessary when comparing the two, given the starkly varying dynamics.
The writer is a legal officer of the Uganda National Oil Company Limited (UNOC)