The Petroleum industry has three major sectors, that is, upstream sector, midstream sector, and downstream sector.
Upstream Petroleum Operations comprise of all or any of the operations related to the exploration, development, production, separation and treatment, storage, and transportation of petroleum up to the agreed delivery point.
Midstream Petroleum Operations comprise of all or any operations related to petroleum transportation, storage, refining operations, or natural gas processing operations that are related to multiple development areas including operations for the liquefaction of natural gas.
Downstream Petroleum Operations comprise of all or any of the operations related to the distribution of petroleum to residential, industrial, power generation, and other end users.
Oil and Gas Industry Value Chain
The oil and gas value chain represents the sequence of activities that occur from the supply sources to trading mechanisms, by which oil, oil products, and gas, are sold in the wholesale markets.
Actors along Kenya’s Oil and Gas Value Chain
The Upstream Sector in Kenya involves petroleum (oil and gas) exploration, both onshore and offshore within Kenya’s four sedimentary basins i.e., Anza, Lamu, Mandera, and Tertiary Rift. The Upstream Directorate also deals with licensing of open petroleum blocks to oil exploration companies, monitoring of exploration activities, development, production, transportation, and export of crude oil.
Oil exploration in Kenya began in the early 1950s when the first Oil Exploration License (OEL1) was granted to B.P Shell Development Company to operate in the Lamu Embayment.
To date ninety-four (94) exploration wells have been drilled by various oil exploration companies in the four sedimentary basins. The exploration wells so far drilled give a very low well density of approximately 1 well for every 12,200 Sq. Km. The well density needs to be increased to accelerate hydrocarbon discoveries across the four basins.
The optimism for more discoveries has been increased owing to improved exploration methods due to advancement in technology that has improved data acquisition, processing, and interpretation tools and techniques. In addition, the recent hydrocarbon discoveries in Block 13T and Block 10BB in the Tertiary Rift Basin, Block 9 in the Anza Basin, and Blocks L8 and Block L10A in offshore Lamu Basin prove are evidence of the presence of an active hydrocarbon system.
The Petroleum Act, 2019 and Model Production Sharing Contract (PSC)
The Act provides a framework for the contracting, exploration, development and production of petroleum; cessation of upstream petroleum operations; to give effect to relevant articles of the Constitution in so far as they apply to upstream petroleum operations, regulation of midstream and downstream petroleum operations; and for connected purposes.
The model PSC provides the framework for negotiations of terms with oil exploration companies in Kenya. The Cabinet Secretary responsible for petroleum enters PSCs with oil exploration companies on behalf of the National Government.
Contract (PSC) Terms
|Period||Onshore/ Shallow Offshore (6 Years)||Deep/Ultra Deep Offshore (7 Years)|
|Initial Period||2 Years||3 Years|
|First Addition Exploration Period||2 Years||2 Years|
|Second Addition Exploration Period||2 Years||2 Years|
Expected Minimum Work Obligations
Contractors are expected to fulfill certain Minimum Work and Expenditure obligations for each exploration period. Contractors are also required to deposit 50% Bank and 50% Parent Company Guarantees to guarantee minimum work and expenditure obligations.
|Period||Obligations Under PSC|
|Initial Exploration Period||Conduct a geological survey and acquire airborne gravity and magnetic full tensor gradiometry (FTG) data across the block.|
|First Additional Exploration Period||Acquire 2D/3D seismic data and drill an exploratory well over an identified prospect.|
|Second Additional Exploration Period||Acquire additional seismic data and drill a well.|
Licensing Status of Blocks
Exploration activities are active both onshore and offshore in Kenya. Out of the sixty-three (63) gazetted petroleum exploration blocks, twenty-three (23) are currently licensed to eleven (11) oil exploration companies. Forty (40) blocks are open for licensing. The eleven (11) operators are: -
- Eni E&P – Block L11A, Block L11B, Block L12, Block L21, Block L23 and Block L24.
- Zarara Oil and Gas – Block L13 & Block L4
- Lamu Oil and Gas – Block L14
- Octant Energy – Block 1, Block L17 & Block L18
- Rift Energy – Block L19
- A-Z Petroleum – Block L1A & Block L3
- Millio International – Block L20
- Lion Petroleum – Block 2B
- Tullow Oil – Block 10BA, Block 10BB, Block 13T, and Block 12B
- NOCK – Block 14T
- Essel Group ME- Block 2A
Petroleum Exploration Block map 2019.
Update on Well Drilling Results
To date, a total of ninety-four (94) wells have been drilled in the country. Twenty-four (24) of these wells are in Lamu Basin; Twelve (12) in Anza Basin; eight (8) in Mandera while fifty (50) are in the Tertiary Rift Basin. Out of the 94 wells drilled, forty-two (42) had hydrocarbon discoveries/shows. This, therefore, confirms that all the four sedimentary basins have mature hydrocarbon systems capable of accumulating economic reserves where petroleum system elements including source rocks, reservoirs, caprock, and traps exist. The table below summarizes the well content of the drilled wells.
|Basin||Dry Wells||Gas Only||Oil Only||Oil & Gas||Total|
The following forty (40) Petroleum Exploration blocks are open for prospective investors in the Oil Exploration Industry. The blocks will be licensed through direct negotiations or bidding rounds which the Ministry is planning to hold in the near future.
|Tertiary Rift||10BAA, 10BC, 11A, 11AA, 11B, 12A, 12AA, 12BA, 15T.|
|Lamu||L1B, L2, L4A, L5, L6, L7, L8, L9, L10A, L10B, L14A, L15, L16, L19A, L22, L25, L26, L27, L28, L29, L30, L31.|
|Anza||3A, 3AA, 3B, 3BA, 9, 9A, 10A.|
The rapid interest shown by International Oil Companies in East Africa and Kenya, in particular, has resulted in major oil players firmly holding onto the Kenyan blocks now that commercial hydrocarbons have been discovered in Turkana County. The entry of these big multinational oil companies promises increased exploration activities in the region formally regarded as an oil frontier. Their presence has ignited high interest in major service companies which are strategizing to take up the existing opportunities. Services relating to geophysical data acquisition mainly seismic survey, well logging and testing, drilling rig services, and a wide range of other associated services will be found locally in the country. The provision of such services will help to accelerate exploration and ultimate discovery of additional oil and gas in the country; and therefore, assist in meeting the country’s power generation and other commercial needs. Other available opportunities include licensing of the open blocks and newly created blocks that are awaiting gazettement.
The Midstream Sector comprises all or any operations related to petroleum transportation, storage, refining operations, or natural gas processing operations that are related to multiple development areas including operations for the liquefaction of natural gas.
The Mombasa-Kenya Petroleum Refineries Limited (KPRL) was the only refinery in East Africa. At one point, the facility was jointly owned by the Kenya Government and Essar Energy of India. Until its closure in September 2013 following Essar’s pullout, it used to refine 40% of all petroleum products requirements in the country. Its nameplate capacity is for 4 Million MT per annum but was operating 1.6 Million MT of crude per year, producing Premium Motor Spirit (PMS), Regular Motor Spirit (RMS), Automotive Gas Oil (AGO), Dual Purpose Kerosene (DPK), Liquefied Petroleum Gas (LPG), Fuel Oil Grease and Bitumen.
Challenges that KPRL faced include frequent electrical power interruptions; overstretching the platformer units beyond the design limit in an attempt to comply with the switch from leaded to unleaded gasoline; higher than normal fuel and performance loss because of top recirculation and power interruptions and breakdowns; diesel sulphur specification restriction imposed worldwide for a cleaner environment; reliance on electrical power provided by KPLC; inability to deliver products on time due to power interruptions and lack of adequate water supply.
Following the closure of the facility, attention turned to alternative ways of using the refinery including potentially converting it into a storage facility to meet the challenge of inadequate storage for strategic and operational stocks in the country.
Modernizing the refinery was the other option. A more viable, modernized facility would produce more competitive products, create jobs and in the event of oil discovery in the region, be a strategic asset for processing such crude oil. The Government has also finalized plans to build another refinery in Lamu and under Lamu Port and Lamu South Sudan Ethiopia Transport Corridor (LAPSSET).
Kenya imports all its petroleum requirements of which 90 percent of the imports constitute white products i.e., Super Petrol, Diesel and Dual-Purpose Kerosene. The current local consumption is approximately 5 million tons p.a
The process of importation of refined petroleum products in the country is centrally coordinated by the Ministry in charge of Petroleum through the Open Tender System (OTS). The Open Tender System is based on Open Tender terms and conditions. There is an agreed Price Build Up for the Refined Products. The Price is an aggregate of FOB, Freight &Premium plus Local Currency components.
The OTS process is based on the freight and premium quoted by sellers for refined petroleum products. Currently, we have about 106 licensed oil marketing companies. Each of the marketers participates both as a buyer and seller. Participation as a seller is a choice.
Invitation to tender on final participation is issued by Supplycor on behalf of the Ministry not later than seven (7) full working days before the tender opening date, unless the tender in question is for an emergency cargo in which case the tender call lead time is waived. Supplycor on behalf of the Ministry notifies OMCs of the total cargo to be tendered accompanied by the breakdown of the individual buyer’s participation indicating the allocation split between local and transit volumes.
Only one bid per company is permitted for submission and the lowest bidder wins the tender for the importation of refined petroleum products on behalf of the industry.
Kenya Pipeline Company (KPC) receives the imported refined petroleum products in its integrated Kipevu Oil Storage Facility (KOSF) and/or Kenya Petroleum Refineries Limited (KPRL) and/or VTTI Terminal as required and obligated by Law under Legal Notice number 197 of 2nd December 2003.
The Ministry through Kenya Pipeline Company has made tremendous progress in the development of requisite infrastructure for the smooth operation of the industry. Focus has been on expansion of throughput, storage capacity, and building jetties that facilitate the exportation of petroleum products to neighboring countries.
|Line Section||Length (km)||Diameter (Inches)||Flow Rate (m3/hr)||No. of Pump Stations|
|Mombasa-Nairobi (Line 1)||450||14||830||8|
|Nairobi-Nakuru-Eldoret (Line II)||325||8/6||220||4|
|Sinendet-Kisumu (Line III)||121||6||100||-|
|Nairobi-Eldoret (Line IV)||325||14||311||2|
|Mombasa-Nairobi (Line V)||450||20||1,100||8|
|Sinendet-Kisumu (Line VI)||121||10||350||-|
|Spur Line from KOSF to Shimanzi Oil Termininal||2.8||12||450||1|
|Changamwe-Moi Int. Airport||3.8||6||120||1|
|Facility||Storage (Million Litres)|
|Moi Airport (Mombasa)||7|
Kenya currently has a pipeline network of approximately 1,792km operated by the Kenya Pipeline Company Limited (KPC) for refined products that run across the country from the coastal town of Mombasa via Nairobi to Eldoret and Kisumu in Western Kenya. The network serves the local market as well as the neighboring countries.
The Kisumu Oil Jetty has been constructed at the lakeside city of Kisumu. The jetty, a project of Kenya Pipeline, will enhance the exportation of petroleum products from Kenya to Uganda. The jetty has a capacity to load 4 million litres per day.
The jetty will help in maintaining product quality and minimizing road carnage as the products will be transported by barges. The new bottom loading facility in Eldoret has seen a reduction in turn-around time for trucks at the depot, thereby enhancing efficiency.