Can you provide an update on the current status of the new pipeline from South Sudan?

In 2012, the Kenyan government signed an agreement with the heads of government of South Sudan to construct a pipeline to Lamu as part of the Lamu Port South Sudan Ethiopian Transport Corridor Project (LAPSSET). Later, in 2013, the Ugandan government discovered oil, and they decided to join the pipeline to Lamu. Feasibility studies were commissioned involving the Kenyan, Rwandan, and South Sudanese governments.

What has been the response to the Front-End Engineering Design (FEED) and the Environmental and Social Impact Assessment (ESIA) for the pipeline?

We have received expressions of interest for the FEED and ESIA, which were shortlisted. The tender for the pipeline is expected to be released at the end of July. Once the tender is out, we aim to award it by the end of October. The FEED phase may take about a year, but the ESIA phase is critical and requires four seasons, which is approximately 12 months, followed by a six-month evaluation period. Assuming all goes well, we anticipate starting construction upon receiving the ESIA certificate in Q2 2018, with completion targeted by the end of 2020.

Is there a possibility of extending the pipeline to Ethiopia?

Extending the pipeline to Ethiopia does make sense. It would be more efficient for Ugandan barrels to come through Kenya, as it would require a shorter distance of about 700 km instead of 1,400 km. However, security concerns, considering past experiences in Yemen, cannot be ignored. To mitigate such risks, our plan is to construct a products pipeline from Lamu to Isiolo, where the road from Addis Ababa ends. This approach would help address security concerns and enable the pipeline to serve multiple purposes. The products pipeline is expected to be operational by 2020, a year ahead of the main pipeline, including the jetty, pipeline, port facilities, and tanks.

What other projects are being undertaken to attract foreign investors to Kenya?

We already have significant investments from institutions such as the African Development Bank and other development banks. Several projects are currently underway, including the construction of the standard gauge railway line from Mombasa to Nairobi, which is six months ahead of schedule and expected to be completed by June 2017. Additionally, we have a major transmission line project in progress, and the public-private partnership is proving successful. Furthermore, the Kenyan Pipeline Company, a state-owned enterprise, already contributes USD 230 million per year. These projects and investments demonstrate the attractive returns that can be obtained from state and private ventures.

How are you preparing for the target of exporting 2,000 barrels of oil per day by July 2017?

The plan involves an extended well test to assess the reservoirs, including water flooding, recoverable reserves, and well depletion. We have options to build new tanks or transport crude oil to Mombasa for storage. This project serves as a pilot to test the viability of the route. Once the full field development is initiated, the same route will be used to transport all the crude processing facilities and pipes through the corridor. The test phase also aims to provide employment opportunities for locals in Turkana and facilitate skills development. The drilling campaign is expected to commence later this year, with the potential for production and appraisal phases in the future, requiring a focus on local content and skills development.

What efforts have been made to educate locals for work in the oil and gas industry?

We have numerous vocational colleges in the country. However, there has been a lack of coordination between academia and industry. To address this, we have implemented competency-based training, developing curricula based on industry demands and identifying gaps in skills among graduates. By focusing on specific skills required by the industry, we have managed to shorten the training period from two years to six months. A skills gap study has been conducted to identify areas where additional training is needed. Oil companies have also invested in vocational training colleges, and private institutions are keen on developing the necessary skills to meet industry demands.

How does this focus on education and skills development benefit Kenya’s industry?

Collaboration with oil companies allows us to establish plans to meet the 40% local content requirement. This involves engaging with manufacturers and other stakeholders to ensure compliance. It makes business sense for them to invest in skills development, especially considering the current low oil prices and exploration slowdown. Additionally, skills in the oil and gas industry are portable, and the Kenyan workforce has shown a willingness to work in neighboring countries. Kenyan students and workers have been well received in various workforces globally, creating opportunities for further growth and collaboration.

What significance does the commencement of crude oil exports hold for Kenya?

The timing of crude oil exports aligns with Kenya’s transition to a middle-income country. With universal power access in households and reasonably well-developed infrastructure, the revenue generated from oil exports can be utilized strategically to enhance further development. This presents an opportunity for Kenya to learn from past mistakes and ensure the smart utilization of oil revenue. The timing of this development is favorable and can contribute to the country’s overall progress.

Has attracting investment been challenging during the period of low oil prices?

Fortunately, the timing of infrastructure development coincides with low commodity prices. This allows us to take advantage of lower costs for acquiring necessary equipment such as pipes. If we had sought pipe manufacturers during a period of high oil revenue, we would have faced longer lead times and increased costs. By investing now, we can benefit from potentially better prices in the future. This fortuitous timing works in our favor.

How do you address concerns about security related to the pipeline?

There are two main risks to consider regarding the pipeline: seismic and human interference. Fortunately, the pipeline route passes through areas with low population density and negligible seismic activity, which improves our ability to protect the infrastructure. Additionally, the pipeline will be buried, and monitoring technology will be employed to detect and prevent unauthorized access. While terrorism has been a concern in Kenya, targeting individuals rather than infrastructure, we believe this factor should also be taken into consideration.

What opportunities do you see for collaborating with China in infrastructure development?

China has a significant presence in Kenya and has been involved in funding major capital projects such as the pipeline and the construction of the standard-gauge railway. Chinese investors are familiar with Kenya’s potential, and the focus is shifting towards financeable projects that can yield returns. We have established a favorable environment with the infrastructure we have put in place, making Kenya an attractive investment destination for Chinese companies.

Will most of the East Africa region’s exports cater to the Asian market?

Yes, that seems likely. In addition to funding, there is an opportunity for partnership with Chinese companies in manufacturing, particularly for energy-intensive projects. For instance, as we develop a coal-fired power plant in Lamu with funding partially from China, we can explore the possibility of bringing manufacturing activities to locations like Lamu, benefiting from the availability of cheap power.

What is the current level of exploration being conducted by operators such as Tullow, African Corporation, Maersk, and CEPSA?

CEPSA has recently completed drilling its well in northern Kenya, which was the most recent well drilled. Kenya is still in the early stages of exploration, with only 80 wells drilled so far. However, we have already identified approximately 750 million barrels of recoverable reserves, which is a significant achievement. We are currently in the discovery phase, and with a new drilling campaign starting next year, we anticipate reaching 1 billion barrels by mid-2024.

When can we expect the first barrels of oil to be produced?

We are anticipating the first barrels of oil to be produced in June next year. Initially, the output will be relatively small, around 2,000 barrels per day. However, full field production is projected to commence in the first quarter of 2021. If we proceed with the construction of a pipeline in Lamu, the breakeven point for oil prices would be around USD 34 per barrel. The availability of water for enhanced oil recovery (EOR) on-site further supports the viability of the project.