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Kenya has greenlighted a crude oil export agreement with Tullow Oil, Maersk International and local Africa Oil, with pilot exports slated to start in June in a major milestone for the East African country, which was put on the oil map with a massive 2012 discovery.
The companies have stored 70,000 barrels of crude oil, which will be used for part of the pilot program.
Three companies announced that they will immediately begin transporting crude oil from the South Lokichar field in the prolific Turkana basin to the Kenyan Petroleum Refineries Limited (KPRL) at the port of Mombasa, from whence it will be exported to market in June.
The South Lokichar field is being explored and developed by a joint venture between three companies. It is estimated that there are about a billion barrels of oil in the Lokichar area.
Last summer, the three companies announced they would restart drilling at the field, planning four wells initially and later possibly doubling that. By the end of this year, it is estimated that South Lokichar will be producing some 2,000 barrels per day of crude.
How will the market respond? According to Energy Cabinet Secretary Charles Keter, it’s too soon to tell. “What is the comparison of our oil with the others in the world? We cannot know that before it hits the market, and that is why we are doing this [pilot test].”
“With this agreement we will now be in a better position to say…by the end of next month, we should start the movement of products from Lokichar to Mombasa and eventually for export,” Keter said.
Related: Why Last Week’s Oil Price Crash Was Inevitable
Last August, Kenya and neighboring Uganda failed to agree on a single pipeline to pump crude from both countries to the coast. Uganda chose a different route for its crude, and now there will be two pipelines running to East Africa ports.
According to estimates, the breakeven price of crude for Kenya is US$45-49 a barrel, coming in slightly higher than earlier estimates of US$37-42 a barrel. This change came about due to the cost of the pipeline that will transport crude from South Lokichar to the coast. The pipeline will run over 855 km and will cost Kenya US$2.1 billion.
Late last month, Tullow Oil and partners announced that work on the crude oil pipeline from Turkana to the coast could start as early as this year, with construction to be completed by 2020.
By Damir Kaletovic for Oilprice.com
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Damir Kaletovic is a veteran investigative journalist covering Europe and the Middle East, and a senior consultant for Divergente Research.