Kenya has announced it can only make a profit from oil sales at $34 (sh3,434) and above per barrel ahead of small-scale crude exports next year.
The Ministry of Energy on Friday gave the break-even cost that is higher than the $25 (Sh2, 525) a barrel issued by British explorer Tullow Oil in February.
Kenyan oil reserves are estimated at about one billion barrels and are commercially viable at the current international price of about $49 a barrel.
“The numbers have been bandied around but it should be about $34 and up,” Petroleum Principal Secretary (PS) Andrew Kamau said during an oil and gas lecture at the University of Nairobi.
The break-even price determines the level at which a producer can stay in the market when prices are dropping.
It also shows the profit margins enjoyed when prices soar. A lower break-even point means lower production cost, making the product competitive in the global oil market that has been hit by a glut amid cooling demand.
At $34, Kenya’s break-even level is higher when compared with top producers like Saudi Arabia ($9) and Venezuela ($23.50). Nigeria’s profit level is $31.60, Angola ($35.40) and US ($36.20), according Norway-based consultancy firm Rystad Energy.
Africa Oil and partner Tullow Oil first struck oil in Lokichar in northwest Kenya in 2012.
The government plans to export its first consignment of 2,000 barrels a day by June next year through road and rail.
Trucks will move the crude oil from Lokichar fields in Turkana to Eldoret before being loaded on train to Mombasa port in the absence of a pipeline.
Construction of a 865-kilometre crude oil pipeline linking the oilfields to Lamu port is set to start in 2018 and end in 2021, according to Ministry of Energy and Petroleum. It will cost Sh210 billion.
Uganda had initially expressed interest for a joint pipeline with Kenya but opted out in favour of a Tanzania route through Tanga port.
Crude oil prices have rebounded from $30 a barrel in February to the current $49, raising hopes of more returns for oil producers.
Tullow had said in February that Kenyan oil had relatively low cost of development and production amounting to $25 per barrel.
Credit: Business Daily