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Kenya Starts Pumping Oil

The Kenyan government said it has approved a plan for the production of between 2,000 and 4,000 barrels of crude daily.

The plan includes an upgrade of road infrastructure to transport the crude to Kenya’s largest port in Mombasa, as well as the construction of a pipeline from the oilfields in northern Kenya to Lamu on the coast. This city is set to become Kenya’s main oil export terminal in the future.

Kenya’s oil deposits are located in the northwestern part of the country, most notable among them the South Lokichar field, which is being explored by a joint venture between Tullow Oil, Maersk Oil, and local Africa Oil. Last month the three companies said they were going to restart drilling at the field in the last quarter of this year, planning four wells initially and later possibly expanding the number to eight. By the end of next year, South Lokichar should produce some 2,000 bpd of crude.

According to estimates from KPMG, the breakeven price of crude for Kenya is US$45-49 a barrel. This is a bit more than previous estimates of US$37-42 a barrel, and the revision was prompted by the cost of the pipeline that will transport crude from South Lokichar to the coast.

This pipeline will run over 855 km and will cost Kenya US$2.1 billion. Oil transportation costs will average US$12.94 a barrel.

Things could have been different if Kenya and neighboring Uganda had agreed on one single pipeline to pump crude from both countries to the coast. Uganda, however, chose a different route for its crude, and now there will be two pipelines running from the oil rich South Lokichar and the Albertine Basin in Uganda to the Kenyan and Tanzanian coast – Uganda will be using Tanzania’s Tanga port to export its crude.

By Irina Slav for Oilprice.com

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