South Sudan Makes Progress On Proposed Kenya Pipeline

South Sudan has moved one step closer to realizing its vision of an alternative oil export route with a statement of willingness from Japan�s Toyota Tsusho to help fund the construction of an oil pipeline through neighboring Kenya that could free it from its long-standing dependence on the North. Nader Itayim writes.

A delegation from Toyota�s trading arm arrived in Juba earlier this month to hold preliminary discussions with Southern Sudanese officials over the possibility of building the proposed oil pipeline. It would extend from the Southern Sudanese capital to the Kenyan port of Lamu around 1,700km away � depending on the route through Kenya. Following the successful completion of a feasibility study, it was reported on 14 June that company officials had agreed in principle to help shoulder the required financing for project, and sign a contract with the authorities in Juba to move forward with construction. Speaking to the Sudan Tribune , a spokesman for the Southern Sudanese Vice-President Riek Machar revealed talks have already been planned with the country�s Ministry of Petroleum and Mining to discuss ways in which the government could repay the firm for its work in the long run.

Following the South�s secession from Sudan on 9 July 2011, the two sides have been locked in a dispute over a number of issues including the sharing of oil revenues, the position of the 1,800km border and the division of national debt (MEES, 11 July 2011). The dispute over oil transit fees came to a head in January this year when the government of South Sudan put a stop to all its oil production activities after admissions from the North that it had been confiscating some of the South�s oil as a form of �payment in kind� for transit fees it said were still unpaid. Khartoum and Juba are yet to reach an agreement on how much the South should pay for its use of Sudan�s existing oil export facilities in the north. South Sudan has offered to pay $0.70/B while Sudan is holding firm on a fee of $36/B � more than 10 times typical industry levels.

Proposed Pipeline Through Kenya

 Source : Toyota Tsusho, Financial Times, EIA

Yet, while progress is clearly being made, it is fair to say the project would come with its own share of obstacles. �Building a southern pipeline through Kenya is fraught with challenges,� Luke Patey of the Danish Institute of International Studies (DIIS) said in a recent report outlining the difficulties facing the much-discussed pipeline project. �The new pipeline would cover diverse terrain, possibly including the highlands of northern Kenya. This would require significantly more investment in pumping stations to speed crude up the inclines and slow it down on the declines,� he said. 

Security would also be a concern, he continued. Whereas the existing pipeline largely runs through uninhabited and heavily guarded areas in the North, the new route �may cross the impoverished and bandit-riven territories of northern Kenya, where Nigerian-style oil theft and pipeline sabotage could potentially be a problem, requiring considerable time for due diligence in pipeline construction and routing.� And what is more, there still remains the matter of cost. While no official estimates have as yet been given, experts suggest such a project would take three-four years to complete and could cost $2-3bn, again depending on the route chosen.

Mr Patey notes that regional developments seem to be working in favor of the proposed Kenya pipeline. �I think the pipeline though Kenya would have the most chance of being built,� he tells MEES, highlighting the discovery of some 3bn barrels in oil reserves close to Lake Albert in Uganda. �The oil production coming on stream in Uganda could possibly be linked to a Kenyan pipeline to the coast, and that would make it more feasible for Southern Sudanese oil to be connected to that.� Construction began in March this year on a $23bn oil refinery and port project in Lamu as part of larger scheme dubbed the Lamu Port South Sudan Ethiopia Transport Corridor (LAPSSET), which Kenya�s Prime Minister Raila Odinga has said could change the �economic landscape of the entire African continent.�

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