Industry Trend Analysis - Export Plans Facing Further Hurdles - MAR 2018

BMI View: With plans to award a design contract postponed until the end of April, the construction phase of the Lokichar-Lamu pipeline project will see further delays , drag ging on the timeline of the Lokichar oil project.

After the cancellation of a pipeline project linking oil reserves in Uganda with the port of Lamu, Kenya is on course to build its own export route to transport crude produced in Turkana to the coast. Kenya and Uganda had initially agreed to jointly build a pipeline running from the oil fields in Hoima, through to Turkana and into Lamu ( see ' Kenya, Uganda Set For Major Production Growth '). However, following Total's offer to finance a feasibility study for an alternative route, Uganda abandoned the project due to concerns related to Kenya's land tenure system and a relatively strong position of local communities that could lead to a number of disputes during the transit fees negotiation process.

Pipeline Project Increases Risks To Oil Export Plans
Planned East Africa Crude Export Pipelines
Source: Bloomberg, BMI

Kenya's government is planning to award a contract for the front end engineering design (FEED) by the end of April, targeting the completion of the FEED early in 2019. Initially, the Ministry had planned to award the contract in the second half of 2017. However, due partly to the delay in negotiating a legal framework for the development of the pipeline between the government and Tullow Oil, the operator of the Lokichar oil project, the search for a design contractor was postponed until 2018.

We believe that this will cause further delays to the commercial oil export phase of the Turkana project, currently targeted for 2020. The government is planning to start an Environmental and Social Impact Audit in March. However, given the strong position of local communities, who have on several occasions expressed their dissatisfaction with the project and Tullow's operating strategy, this may prove to be a difficult task. Consequently, we believe that the pipeline will not come on stream before 2022.

Oil Exports Facing Further Delays
Kenya Crude production [000b/d] vs Total Net Oil Exports [000b/d]
Source: BMI/EIA