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Pipeline key to unlock African reserves

World Pipelines,

The latest upstream analysis from Wood Mackenzie reports that the proposed 1400 km pipeline from central Uganda to Lamu on the east coast of Kenya, is essential in order to realise the region’s huge hydrocarbon potential.

Wood Mackenzie asserts that the neighbouring countries’ combined yet-to-find (YTF) reserves are in excess of 4 billion bbls. However, it is estimated that the proposed pipeline will cost at least US$ 4 billion, and may face a number of challenges before construction can begin. Once the pipeline is complete, Wood Mackenzie believes that hydrocarbon discoveries will deliver good returns for operators, as well as substantial tax revenues to the governments of both Uganda and Kenya.

Martin Kelly, head of Sub-Sahara Africa upstream research at Wood Mackenzie, commented: “Kenya’s onshore Gregory Rift Basin has established itself as a new hydrocarbon province after recent exploration activity yielded 430 million barrels of recoverable oil. Neighbouring landlocked Uganda has over 1.2 billion barrels of discovered volumes.”

Limited infrastructure

The research company believes that developing these resources will be challenging, as the basins are located far from the coast, with very little existing infrastructure nearby. However, after considering several export route options, Uganda and Kenya’s governments have agreed to build one pipeline to transport the stranded resources.

Kelly continued: “There is huge untapped potential across both countries, with over 3.5 billion barrels of YTF volumes in Kenya, and a further 1 billion barrels of YTF reserves in Uganda. The proposed pipeline is fundamental in unlocking value for both countries.”

Catriona O’Rourke, senior Sub-Sahara Africa upstream research analyst added: “There are of course a number of challenges to be overcome before the pipeline can be built. The crude oil discovered in both countries is very waxy, with a pour point of over 40oC, so the crude will need to be transported by a heated and buried pipeline in order to maintain continuous flow - increasing the cost substantially. The pipeline will also pass through extremely difficult terrain, including mountains, rivers and marshland. Factoring in these challenges, we estimate the cost of the pipeline to be at least US$ 4 billion, including port offloading and storage facilities at Lamu.”

Substantial benefits

“Despite the remoteness, complexity and cost of the project, we believe the pipeline could come onstream in 2019. We also believe that once the pipeline is completed, the Kenyan and Ugandan discoveries will deliver good returns for the upstream partners involved and substantial tax revenues to both the Kenyan and Ugandan Governments,” O’Rourke concluded.

Wood Mackenzie forecasts that the Uganda to Kenya pipeline could also encourage exploration activity in neighbouring countries such as Ethiopia, South Sudan and Democratic Republic of Congo, as discoveries in these areas could potentially link to the pipeline in the future.

Adapted from press release by Katie Woodward

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