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African oil, gas pipeline deals forged

The prospects of a Kenya-South Sudan joint pipeline would also be reliant on the restoration of peace in South Sudan.

Kenya woos South Sudan following collapse of African oil, gas pipeline deal with Uganda

NAIROBI, Kenya (AFKI) — Kenya faces a race against time to win the full backing of South Sudan for its planned oil pipeline after Kampala pulled the plug on an earlier oil and gas pipeline deal for a joint petroleum project with Nairobi.

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Uganda on Saturday formally announced it will build a pipeline for its oil through Tanzania rather than Kenya, which had wanted to secure the export route.

“There is no more paralysis on that matter, we are moving,” Ugandan President Yoweri Museveni said at the end a regional summit meeting attended by AFKInsider in Kampala on Saturday.

Kenya in response said it would immediately embark on the construction of its own pipeline—ending months of spirited attempts to woo Uganda into the joint project it was to pursue with other regional states under a public-private partnership (PPP) model.

“We have however agreed to continue cooperating on petroleum issues since both countries are new in the industry,” Kenyan President Uhuru Kenyatta said in a statement.

Analysts said the success of the pipeline project linking Kenyan discoveries in Lokichar Basin to Lamu on the north coast will highly depend on the volume of products moved hence the need to court the Juba administration.

“In pipeline projects, the numbers are key. Maximising on the volume of product to be moved will be critical to guarantee the economies of scale. With Uganda out of the equation, is will only be sensible to have South Sudan on board to ensure the pipeline will have sufficient products,” Ken Mwihia, an infrastructure analyst told AFKInsider.

A joint Kenya-Uganda pipeline deal was considered highly viable thanks to the massive discoveries of petroleum in both countries.

In Uganda, an estimated 6.5 billion barrels of oil were discovered in the Albertine basin near the border with Democratic Republic of Congo (DRC). In Kenya, it is estimated that the recoverable reserves total an estimated 600 million barrels.

“From the Kenyan numbers it is clear that South Sudan may lend critical support in striking the economies of scale which is vital in an industry that is sensitive to margins,” Mwihia said.

Apart from its large crude reserves, South Sudan could be a perfect partner for Kenya in a joint pipeline project because of its long-running woes pumping oil through Sudan.

South Sudan’s crude production currently stands at about 165,000 barrels per day despite the disruption caused by armed conflict and feuds over of export passage.

Juba and Khartoum have over the years been feuding over transit fees leading to disruptions in the flow of crude to the markets.

South Sudan, which has its oil pipelines through Sudan, demands that its neighbour charges transit fee based on prevailing crude prices and not a fixed fee. Sudan previously charged South Sudan about $24.50 a barrel in transit fees.

“When we negotiate on … fees, in particular, that thing would not be fixed … It will fluctuate up and down depending on the prices of the crude globally,” Reuters quoted South Sudan Petroleum Minister Stephen Dhieu Dau as having told reporters after meeting with his Sudanese counterpart, Mohammed Zayed Awad in February.

A new transit arrangement through Kenya could help South Sudan address its challenges of pumping crude through Sudan.

Kenya already considered South Sudan key under the original Lamu Port Southern Sudan-Ethiopia Transport (LAPSSET) corridor project structure and is now expected to woo Juba to realize the joint dream.

“When we were creating Lappset, Uganda was not even part of the project. Their only link is a pipeline from their oil fields to ours in Turkana. Their exit will not have an impact,” Gituro Wainaina, the acting director-general of Vision 2030 Delivery Secretariat, said.

“Uganda was not even contributing a penny but the beauty is now we have added South Sudan into the East African economic block which is crucial,” he added.

Kenya’s courtship of Juba will be uplifted by the fact that South Sudan on April 15, 2016, officially become the sixth member of the East African Community (EAC) after it signed documents acceding to the treaties of the regional bloc.

Kenya would, however, have to work to secure its northern frontier from security threats by militant groups, especially from Somalia.

France’s Total, one of the oil firms developing Uganda’s fields, had raised security concerns about the Kenyan route citing militants who have recently launched attacks on Kenya and favored an option to build a 1,000-mile oil pipeline between Tanga and Uganda.

On the other hand, Britain’s Tullow Oil, with stakes in both countries, had backed the Kenyan route, saying it would be cheaper if oil from both pipelines followed the same route.

“While we have always believed that a joint Uganda-Kenya export pipeline was the most cost-effective option, we are clear that both Uganda and Kenya’s oil resources can be developed separately,” Tullow said in a statement.

The prospects of a Kenya-South Sudan joint pipeline would also be reliant on the restoration of peace in South Sudan.

Political leaders in South Sudan are lately keen on fostering peace following pressure by the international community after recent animosity between the government and the opposition almost slid the country back to civil war.

Mistrust between the opposition-led Riek Machar and the President Salva Kiir administration in Juba has caused concern over lasting peace in South Sudan.

A scheduled return of Machar to the capital Juba to form a transitional government with President Kiir has been postponed—signaling underlying feuds in Africa’s newest nation.

President Kiir sacked Machar as vice president in 2013, worsening a political dispute that escalated into fighting in December that year between soldiers taking sides, reopening ethnic rifts between Kiir’s Dinka group and Machar’s Nuer.

African Insider.

 

 

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