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Kenya Petroleum Refineries Limited: A lost opportunity?

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By TF News Team

A meeting of the Heads of State from the East African Community (EAC) in Kampala six years ago directed the Arusha-based secretariat to develop a strategy on refineries in the region.East African region requires new refinery after oil discoveries in Kenya and UgandaEast African region requires new refinery after oil discoveries in Kenya and Uganda

 

During that period, Uganda, Tanzania and Kenya had scaled up oil exploration in the region with oil findings now confirmed in Uganda and Kenya while Tanzania discovered huge deposits of natural gas.

 

South Sudan with huge oil deposits was still struggling to free itself from the Khartoum regime. It gained independence mid 2011 but its efforts to export oil through Khartoum have proved unreliable.

 

By then the Mombasa-based Kenya Petroleum Refinery Limited (KPRL) was and is the only refinery in East Africa. It is 50 per cent owned by the Government of Kenya and the remaining shareholding by Essar of India.

 

KPRL currently processes 1.6 million tonnes a year (35,000 bpd crude oil equivalent) although it has a potential capacity of 3.2 million tonnes (70,000 b/d crude oil equivalent).

 

The under utilization of the existing refinery is due to efficiency limitations from the available hardware. There are, however, plans to install a residue thermal cracking unit and diesel desulphurization facility to improve efficiency of the refinery at a cost of US$400 million (Sh3.2 billion).

 

Secretariat recommends

If the volumes so discovered justify establishment of a local processing plant or refinery, then establishment of a local refinery to refine the crude oil would be the most feasible option.

Local refining of crude would not only add value that would be otherwise lost if crude oil was exported, but would also offer other connected and associated benefits including, provision of employment, building of local capacity, facilitation of the industrialization process of the country, support and emergence of secondary industries such as the petro-chemical industry.

Establishment of a local refinery would also lead to the production of other products such as LPG, fuel oil and bitumen which are otherwise expensive to import.

 

The resulting efficiency improvements as well the ability to produce environmentally friendly products will enable the utilization to be raised from 1.6 million tones to 3.2million tones per year and increase the production of LPG from the current 30,000 tones to 110,000 tones.

 

KPRL currently receives parcels of 80,000 tonnes of crude oil due to limitations of the harbour. Plans are underway to dredge the harbour to allow for ships with up to 150,000 tonnes capacity which will result in a reduction in freight charges.

 

Case for new refinery

 

The secretariat says in its report that when the oil reserves in Uganda are firmed up, a new regional refinery will need to be built if found feasible. The key drivers for development of a new refinery include value addition.

 

Refining the crude produced in the region adds value to the crude compared to exporting crude. In addition to the primary products of refining, there are a number of industries that use feedstock from refinery products.

 

These include; petrochemical industries, bitumen and asphalt manufacturing and pharmaceuticals.

 

The demand for petroleum products in the wider East African region which is estimated at 162,000 bpd cannot be satisfied by KPRL even after the planned modernization.

 

A fortnight ago, President Uhuru Kenyatta and Yoweri Museveni met in Kampala where the two agreed to build a new refinery in Uganda to refine oil from the region including South Sudan that is currently exporting crude oil.

 

However, the future of KPRL was not part of the talks though it featured prominently in the refineries strategy that was prepared by the EAC secretariat.

Projected petroleum demand

 

Barrels per day

2015

2025

2030

Total Regional demand

290,000

400,000

555,000

Capacity of KPRL

80,000

80,000

80,000

Gap potentially to be filled by new refinery

210,000

320,000

475,000

 

Source: EAC Strategy for Development of Regional Refineries

 

The strategy says traditionally global refineries have been large and fewer, most of these were set up more than 30 years ago.

 

The industrial countries delay from building new refineries suggests that the refining industry will go back to the locations of the crude oil production, in the producing nations, which allows them to play a bigger role in the global market.

 

By then Africa had 50 refineries out of a global population of 689 refineries. The average processing capacity of refineries in Africa was 70,000 barrel per day lower than the world average of about 122,500 bpd.

 

East Africa, with only one refinery processing 70,000 bpd, has the lowest distribution of refineries in Africa.

 

All the refineries in Africa are basically of the topping/reforming type, except for the four refineries in South Africa, two in Egypt, three in Nigeria, one in Cote d’Ivoire, and one in Ghana, which are of the cracking type.

 

Refineries of topping/reforming type result in residue yield ranging between 30-70 per cent depending on the crude type. Residue has the least price in the market compared to crude and the other products.

 

It says generally, a higher residue yield from a refinery results in reduction in the refinery margin and in order to improve their profitability modern refineries have a process cracks the residue and produces the higher valued products like gas, naptha, kerosene and diesel.

 

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