Oil exports? Don’t celebrate; it’s a drop in the ocean

By MUNGAI KIHANYA

The Sunday Nation

Nairobi,

04 September 2016

There was excitement when the news came out that Kenya will begin exporting oil from mid next year. Making the announcement, President Uhuru Kenyatta said that 2,000 barrels would be produced daily and transported by road to Mombasa. Is the excitement warranted? Are we going to see a big change in the financial position of our country?

The average price of oil in the world market has remained below US$50 per barrel for several months now. Assuming our oil can be sold at this limiting price, we can optimistically predict that it will raise about US$100,000 per day (US$50 x 2,000)

Now, that’s not an earth-shaking amount! On a yearly basis, it comes to US$36.5 million. In Kenyan money, this is just Sh3.6 billion per year.

There are many companies in Kenya that generate more than this amount in exports! The total value of Kenya’s exports last year was Sh580 billion. The Sh3.6bn from oil is just 0.6 per cent; that is, a drop in the ocean!

In comparison, Saudi Arabia produces about 11 million barrels per day. Kenya’s commercially viable reserves are estimated to be about 600 million barrels. If our oil was pumped at the Saudi Arabian rate, it would be exhausted in 55 days!

Furthermore; the money from the initial production will be utilized in recovering the exploration costs. In other words, the mining company – Tullow Oil – will retain all of it until they recover the amount they have pumped in the project.

It is only after that point that the government will start sharing the oil with the miner. The initial splitting ration is 50:50. Thus with Kenya would keep 1,000 barrels per day. This would earnUS$50,000 daily, or Sh5 million. In one year, this comes to US$18 million, or Sh1.8bn.

Bearing in mind that our national budget stands at about Sh2 trillion, Sh1.8bn is just but a grain of sand on the sandy beaches of Diani!

The other question in the air is whether we have enough trucks to transport the oil to Mombasa. Let’s find out how many are needed.

A tonne of oil has about 7 barrels; so 2,000 barrels weigh about 285 tonnes. Thus we need about ten 28-tonnne tankers daily to evacuate the oil.

The journey from Turkana to Mombasa and back will take about one week. Therefore, assuming that none of the lorries break down at any time, we will need 70 (10 every day for seven days) of them to do the job. To prepare for any unforeseen delays on the road, we may want to assign 100 trucks for the job.

Again, this is not a big logistical problem: Bamburi Cement company evacuates 2,000 tonnes of cement from one of its factories; what is 285?

The moral of the story: don’t stop doing what you were doing just because Kenya has started exporting oil. It will not make any noticeable difference in the economy!