Parliament has questioned the commercial viability of the Turkana oil project, which is set to produce an estimated 70,000 barrels per day at its peak.
The National Assembly’s Energy Committee Thursday questioned how the country stands to make money from such a relatively low volume of production that dwarfs in comparison to big producers such as Saudi Arabia, which pumps 11 million barrels per day.
The Turkana oil project is expected to have consumed an estimated $5 billion (Sh500 billion) even before the start of commercial production.
Martin Mbogo, the managing director of British exploration firm Tullow Oil Kenya, told the legislators that only 70,000 barrels per day will be produced in the first phase of the Lokichar basin project.
Committee chairman David Gikaria demanded to know how the relatively low production will compete with other oil producing countries such as Saudi Arabia, the US (10 million barrels per day) and Russia (nine million barrels per day) in the international oil markets.
“With only 70,000 barrels of oil per day, how are we going to be commercially viable? We understand that our oil will need to be produced and transported through heating, which will increase the costs,” said Mr Gikaria.
Mr Mbogo, who appeared before MPs to provide a status report on the Early Oil Pilot Scheme, said Tullow Kenya has so far spent Sh200 billion ($2 billion) in exploration of the Turkana oil and expects to spend a further Sh300 billion ($3 billion) in the lead to production.
Of the Sh300 billion, Sh100 billion will be spent on the development of the Turkana oil fields and Sh200 billion for construction of the crude oil pipeline.
“We will have spent Sh500 billion ($5 billion) for the first phase of development of the Turkana oil fields. This is for phase one, which covers East and South of Turkana oil fields. Phase II is likely to come later,” Mr Mbogo said.
He said the design capacity for the first phase covering 220 million barrels of the 560 million barrels project once fully developed will see a maximum production capacity of 100,000 barrels per day.
“But we estimate that 70,000 barrels per day will be produced within the Sh500 billion project. At $50 per barrel, we project revenue of $1.5 billion per year for the 70,000 barrels per day,” Mr Mbogo told MPs.
He said Tullow faces challenges given the waxy nature of the oil, which will need to be heated to keep it flowing.
Mr Mbogo said Kenya is unlikely to hit its target for full production by 2022 given the challenges the company has faced with the local community.
Mr Mbogo said only 148,800 barrels of oil had so far been shipped from the Lokichar oil fields to Mombasa under the Early Oil Pilot Scheme. He said the scheme requires a buildup of 250,000 barrels of oil to be shipped out of the country to test international prices and oil quality.
He said 80 trucks are trucking the fuel to Mombasa. Tullow pays $21 per barrel for a round trip.
MPs from Turkana County led by James Lomenen (Turkana South) and Mohamed Lokiru (Turkana East) put Mr Mbogo on the spot over an oil supply contract that was awarded nine years ago to the National Oil Corporation of Kenya (NOCK) where his wife, Jane Mwangi, is the managing director.
Mr Mbogo clashed with Mr Lomenen when he accused the MP of having interest in a company known as Kapese that transports oil to Mombasa. He said that Mr Lomenen has interests through his brother, who is a director.
The committee put Mr Mbogo to task to disclose whether he has any association with Oil Movers, a company currently engaged in the transportation of the Early Oil Pilot Scheme.
Mr Mbogo was also confronted with accusations of deliberately orchestrating conflicts with communities so as to earn Sh10 million per day as compensation for idle use of equipment including trucks and oil rigs from the government.
He acknowledged that the NOCK MD is his wife but said he did not see any conflict of interest “since Tullow has procurement processes that meet international standards.” He said NOCK operations are 99 percent downstream while Tullow operates in the upstream petroleum.