Kenya turns to Nigeria for crude oil, gas at discounted prices

With proposed electricity generating plants that are expected to reduce the overall cost of power and of doing business in the country, Kenya is seeking to buy crude oil and natural gas from Nigeria at concessionary prices to fire up the plants.

Nigeria, in the past few years, has seen significant decline in the imports of its crude oil and gas from the United States, a development that has deepen the need for the African top oil producer to ramp up efforts toward finding new markets.

The East African country was said to have made the request for preferential treatment recently in a deal that could see Nairobi cede oil blocks to Nigeria. 

It was part of the discussions between President Uhuru Kenyatta and his Nigerian counterpart, Goodluck Jonathan, during the former’s state visit to Abuja this year that saw the two governments sign deals on technology transfer and capacity building in oil- and gas-related skills. 

The concessionary crude oil would help Kenya rein in its import bill given that petroleum products are its single largest import item. Fuel imports account for at least a quarter of Kenya’s total imports. 

Over the past six years, landing prices for Murban Crude at the Mombasa port have doubled from $62 per barrel to around $113. 

Moreover, the growing economy is expected to fuel a steep jump in consumption, with the government estimating that the country will be using six million tonnes annually by 2016, up from the current 4.5 million.

While details of the deal have not been firmed up, the two countries have signed a memorandum of understanding, setting the tone for negotiations that could see Kenya offer vacant oil blocks — with at least six due for auction.

The six blocks due to be auctioned in Kenya fell vacant following the announcement in 2012 of new rules requiring exploration firms to cede 25 percent of their licensed acreage if they failed to work on the sites in the stipulated time. Once auctioned, the blocks will increase Kenya’s exploration areas to 52 from 46.

The biggest challenge in the oil and gas deal would be shipping costs because the crude will have to travel from West Africa to Cape Town before landing at the Kenya coast, Mwendia Nyagah, a Nairobi-based petroleum expert, was quoted to have said.

The Nigeria deal is crucial to Kenya’s plans to build a 700MW natural gas-fired power plant in 30 months as part of an ambitious plan to add an estimated 5,000MW of capacity — triple the current capacity — over the next three years. 

General Electric is also involved in several investments in the power sector that could add about 1,000 megawatts (MW) to the Kenyan grid over the next five years.

‘FEMI ASU, with agency report