Pipeline – Oil is still required and an important resource

The overwhelming source of Government revenue is their share of profit from oil. Profit oil generates 80-90% of government revenue at varying price levels. Renewable Energy can now be the major source of income for the Government and not oil.

bbl/d means Barrels per day – and is a unit of measurement used in the oil industry to quantify the rate of oil production. It represents the number of barrels of oil produced in a single day. This measurement is widely used to express the production capacity of oil wells, fields, or entire regions. Price is approximately US $79 per Barrel as of January 2024

The Lapsset Corridor pipeline, also known as the Lamu Port-South Sudan-Ethiopia Transport (LAPSSET) Corridor, is a major infrastructure project in East Africa. It involves the construction of a 1,500-kilometer long pipeline to transport crude oil from South Sudan and Uganda to the Kenyan coast for export.

The Lokichar to Lamu Crude Oil Pipeline (LLCOP) is being developed by a consortium of the Government of Kenya and international oil companies developing the oil resources in the South Lokichar basin in Turkana. The LLCOP will transport crude oil from South Lokichar to the coast at Lamu for export.  The pipeline will be buried to minimise disruption to land users and wildlife. The LLCOP will be built within the LAPSSET Corridor. Land within the LAPSSET corridor will be acquired by the Ministry of Land and National Land Commission on behalf of the LCDA. The Crude Oil Pipeline Pre-Front End Engineering Design (FEED) studies were completed in 2015 and a Joint Development Agreement (JDA) signed in 2017 between the Government of Kenya and Upstream Investors (Tullow Oil Company, Africa Oil and Total). The Front-End Engineering Designs (FEED) and the Environmental and Social Impact Assessment (ESIA) studies were also completed in 2019.

1. Under the “best case” assumption of production beginning in 2021, oil production reaches its peak in the years 2025-2030 before beginning a rapid decline. Revenues to the government peak in the late 2020s at USD 650 million per year with oil prices at $45/bbl, at USD 1.7 billion at $65/bbl and at USD 2.7 billion at $85/bbl – bbl + barrels of oil.

2. The overwhelming source of Government revenue is their share of profit from oil. Profit oil generates 80-90% of government revenue at varying price levels. The windfall tax generates significant additional revenue over the lifespan of the project but is of course very price sensitive. At $85/bbl the windfall tax generates a total of more than USD 1 billion accounting for just under 15% of government revenue.

3. Our analysis suggests a total undiscounted government take of around 70%, with 60% coming from production sharing and the windfall tax, and an additional 10% coming from state participation. The PSC terms used in this analysis therefore compare reasonably well with international averages, taking into account that Kenya was not an existing oil producer when the contracts were signed.

The pipeline is a key component of the wider LAPSSET Corridor project, which aims to develop a transportation corridor connecting Kenya, South Sudan, and Ethiopia. The corridor includes the development of a new port in Lamu, Kenya, along with road and railway networks, airports, and other infrastructure projects. The Lapsset Corridor pipeline is intended to provide a more cost-effective and efficient means of transporting oil and gas resources from landlocked South Sudan and Uganda to international markets. It will contribute to regional economic integration and help diversify the economies of the participating countries.

The project is being jointly implemented by the governments of Kenya, South Sudan, and Ethiopia, with support from international partners and private investors. Construction of the pipeline is ongoing and expected to be completed in the coming years.

Oil – Important product

At COP28 agreement reached to transition away from Fossil Fuels, however Oil is an important resource and be used by society in several ways:

14 million tons of Carbon Dioxide emissions occur in Kenya every year due to oil use.

Oil has a wide range of applications and can be used for various products. Some common uses of oil include:

1. Transportation fuel: Oil is processed into various fuels such as gasoline, diesel, and jet fuel, which are used to power cars, trucks, airplanes, ships, and other vehicles. For the Lapsset Corridor a transition away from Fossil Fuels will be important for COP28 compliancy – Green Hydrogen, Bioethanol and electricity preferred for transportation Fossil Fuel transition.

2. Heating and electricity generation: Oil can be burned in furnaces and power plants to generate heat and electricity.

3. Lubricants: Oil is used as a lubricant in engines, machinery, and other moving parts to reduce friction and wear.

4. Petrochemicals: Oil is a feedstock for the production of petrochemicals, which are used in the manufacturing of various products such as plastics, synthetic fibres, rubber, fertilizers, detergents, and pharmaceuticals.

5. Asphalt: Oil-based asphalt is used for road construction and surfacing.

6. Industrial processes: Oil is used in a wide range of industrial processes, including manufacturing, chemical synthesis, and heating.

7. Cosmetics and personal care products: Oil is used in the production of cosmetics and personal care products such as lotions, creams, shampoos, and soaps.

8. Lubricants and greases: Oil is used as a lubricant in machinery and equipment, ranging from automobiles to industrial machinery.

9. Bitumen: Oil-based bitumen is used in road construction for waterproofing and binding aggregates together.

10. Plastics and packaging materials: Oil is a key ingredient in the production of plastics, which are used in various products and packaging materials.

These are just a few examples of the many products that can be derived from oil. The versatility and wide range of applications make oil a crucial resource in various industries.