Kenya's government said Saturday it has begun the process of relocating Mombasa-based Kipevu oil terminal to create additional capacity at a cost of $120 million.

Kenya Ports Authority chairman Danson Mungatana said the new terminal, expected to be completed in 2018 and will reduce fuel pump prices in the East African nation.

"Preliminary design of the new facility has been undertaken and the relocation agreed upon by all stakeholders. The detailed design will cost 1.7 million dollars while construction of the facility will cost about 120 million dollars," said Mungatana.

The KPA chairman who was speaking during the official launch of the Kenya Oil and Gas Association in Nairobi said the new terminal will have capacity for two large vessels each carrying 100,000 tons of crude oil.

Kenyan oil firms have previously cited the high cost of refined petroleum products to losses incurred as a result of refining at the Kenya Petroleum Refineries Limited (KPRL) facility in Kipevu.

Analysts say this will enable the refinery to play a key role in reducing the price of fuel in the East African country to the benefit of consumers affected by the high cost of living.

Mungatana said the government is in talks with development partners to commence the project in the course of this year.

The KPA chairman said the new facility would help address the perennial capacity constraints in handling petroleum products, citing this as one of the factors behind the high fuel prices in Kenya.

"The sector has been experiencing shortages of petroleum oils occasioned by lack of adequate storage capacity in the industry. The situation has caused delays of vessels and inadvertent ship congestion which in turn raises prices of oil in the country," Mungatana told stakeholders in the oil and gas sector.