An oil rig near the
shores of Lake Albert
in western Uganda
Nairobi, Kenya — 20 August 2013 – Kenya is headed to become the first oil exporter in East Africa, moving in less than five years from being a have-not nation to becoming the regional leader in cutting reliance on foreign energy suppliers such Royal Dutch Shell Plc.

After Tullow Oil plc discovered oil last year, Kenya is set to start shipments in 2016, overtaking neighbouring Uganda, where Tullow found crude more than seven years ago, reports Bloomberg News.

The U.K. explorer plans to start pumping in Kenya as soon as next year, chief operating officer Paul McDade said in an interview. Kenya’s deposits may top 10 billion barrels, according to the company, more than three times the U.K.’s remaining reserves.

Exports will underpin Kenya’s shilling currency and are being pushed by a government that wants a lead on Uganda and Democratic Republic of Congo, whose East African resources in recent years attracted explorers such as China’s Cnooc Limited and France’s Total SA.  Most oil companies traditionally had focused on the African powerhouses of Nigeria and Angola to the west, and Libya and Egypt on the Mediterranean.

“Oil will allow Kenya to diversify export earnings and act as a catalyst for infrastructural spending, especially on the transport network,” said Phumulele Mbiyo “’ regional head of macroeconomic research at Nairobi-based CfC Stanbic Bank Limited, a unit of Standard Bank Group Limited. “The shilling is expected to benefit from inflows of foreign exchange and reduced spending on fuel imports.”

Kenya imports all its fuel, almost 80,000 barrels of oil a day, at a cost of more than US$8 million a day, according to U.S. government data. It relies on exports such as coffee and tea to support the balance of trade in a US$37 billion economy.

Tullow estimates that it has found more than 300 million barrels of oil equivalent resources, after making three discoveries in Kenya’s South Lokichar Basin. In February, Twiga became the first well in Kenya to produce oil at a commercially viable rate and has the potential produce 5,000 barrels a day.

Vivo Energy, a Shell joint venture with Vitol Group, as well as Total and KenolKobil Limited, are the biggest suppliers of crude and petroleum products to the nation.  

The discoveries have been made in the remote and underdeveloped Turkana region in the north-western part of Kenya’s Rift Valley. Shipments will initially be made by truck or train for refining in Mombasa or exports. Once more fields are discovered and developed a pipeline can be built.

Kenya oil exports are “a very bullish idea, because Turkana is one of the least developed parts of Kenya,” Clare Allenson, an analyst at Eurasia Group, said in a phone interview. “This is definitely worth watching to see how it will progress.”

Tullow and partner Africa Oil Corporation  plan to spend at least a year exploring for further deposits. They have two drilling rigs in Kenya and expect to secure one more later this year.
The Kenyan government wants things to go faster.

“They are not drilling enough wells,” Kenyan Petroleum Commissioner Martin Heya said in phone interview from Nairobi. “Uganda drilled a long time ago, but it’s possible that we can produce earlier than anybody else. We shall be happy.”

Tullow is facing delays in Uganda, where the government and oil companies are negotiating the terms of production after 1.7 billion barrels of oil were discovered. Oil from landlocked Uganda will eventually be exported through Kenya.

Ugandan President Yoweri Museveni’s government has delayed the US$10 billion investment planned by Tullow and its partners, Total and Cnooc, to tap the Lake Albert fields. The sides need to agree on the size of a local refinery and an export pipeline, which is likely to cross Kenya in 2018.

“Uganda missed the bat and Kenya will become the oil-sector hub,” John Small, the CEO of the Eastern Africa Association, said in an interview. “It only makes real commercial sense to cooperate and have a linked pipeline network” in the region.

In Kenya, Tullow and Africa Oil still have to submit their field development plan to the Kenyan government. Eventually, a pipeline will be built from the fields to a terminal on the Indian Ocean coast, McDade said.

“For the Kenyan economy it’s going to be a major step forward,” Africa Oil CEO Keith Hill said in a phone interview. “Once the export pipeline is completed they will have a significant influx of capital coming in from oil export revenues.”

Source: Bloomberg News. For more information, click here.