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Sunday, 11 September 2011

Oil dealers must invest in storage, task force reports

An oil industry task force has identified storage capacity as a key missing link in ensuring the country’s long term energy security particularly now with the planned conversion of the Kenyan refinery into a merchant facility which buys and refines products for sale.

An oil industry task force has identified storage capacity as a key missing link in ensuring the country’s long term energy security particularly now with the planned conversion of the Kenyan refinery into a merchant facility which buys and refines products for sale. 
By Zeddy Sambu  (email the author)

Posted  Sunday, September 11  2011 at  21:31
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Oil dealers will in future be compelled to invest in storage tanks as part of new requirements for licensing, raising the bar for entry into the capital intensive industry.
An industry task force has identified storage capacity as a key missing link in ensuring the country’s long term energy security particularly now with the planned conversion of the Kenyan refinery into a merchant facility which buys and refines products for sale.
The refinery has since its establishment been running on a contract manufacturing model, where it refined products for a fee on behalf of other marketers.
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“Independents can undertake such investments jointly. Two or more firms could join to develop one storage facility,” says the report by the task force that was appointed by Prime Minister Raila Odinga.
The task force was chaired by Silvester Kasuku and its report - Petroleum Industry in Kenya - released last month.
It also proposes that the government constructs new storage facilities at Mtito Andei, Taveta, Konza and Nanyuki to ease distribution of oil.
Also proposed is expansion of storage capacity in of Mombasa, Nakuru, Kisumu and Eldoret. There are 53 oil companies in Kenya, many of them single outlet operations that rely on tankers to replenish their stocks.
The refinery boasts more than half a million cubic metres of storage space whose availability to marketers will be restricted once it changes its business model.
“The biggest risk regarding refinery storage is if it gets withdrawn from the market completely during the upgrade, which would mean we need more storage for imports, and this would be urgent,” said industry consultant Mwendia Nyaga.
Currently, the refinery allows dealers without own network to keep their products at a fee of a $3 (about Sh270) per cubic metre per month.
Big firms with a network of storage tanks mainly in Mombasa and Nairobi charge $6 per cubic metre for the same duration.
The refinery’s storage charge is likely to be reviewed in January when market rates start defining the cleaner’s pricing. The scarcity of storage space amid surging demand is likely to push prices upwards.
“Only Nock and Gulf Energy have recently built plants but they are small,” said Peter Nduru, director for petroleum at the Energy Regulatory Commission (ERC).
Gulf Energy’s terminal however is a truck loading facility that will rely on the Kenya Pipeline storage in Embakasi.
The Gulf depot has an installed capacity of 3 million litres plus 400 000 tonnes of while State-owned Nock’s Nairobi terminal has a capacity of 3.7 million litres per day.

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