Ideas & Debate

Uganda can finally see oil exports happening

M7&Suluhu

Presidents Samia Suluhu Hassan (Tanzania) and Yoweri Museveni (Uganda) on Sunday, April 11, 2021. PHOTO | COURTESY

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Summary

  • On Sunday, April 11, President Yoweri Museveni of Uganda and President Suluhu Hasan of Tanzania assembled in Entebbe to sign agreements to seal final commitments between the two countries to facilitate the construction of the East African Oil Pipeline.
  • The agreements opened the way for the Uganda Oil project to proceed to full implementation, for without a pipeline there can be no production for exports.

On Sunday, April 11, President Yoweri Museveni of Uganda and President Suluhu Hasan of Tanzania assembled in Entebbe to sign agreements to seal final commitments between the two countries to facilitate the construction of the East African Oil Pipeline (EAOP) which will export Uganda oil through Tanzania.

The agreements opened the way for the Uganda Oil project to proceed to full implementation, for without a pipeline there can be no production for exports.

The presence of Patrick Pouyanné, the CEO of Total International, at the Entebbe function and his statement promising final investment decisions on the pipeline and oil production projects, was a significant indication that investment dollars will finally flow into Uganda and Tanzania to simultaneously implement the pipeline and oil production projects.

The 1,445 kilometre and 24-inch diameter pipeline, with a design capacity of 230,000 barrels per day, will run from Lake Albert oilfields to the port of Tanga in Tanzania.

To improve the pumpability of the viscous and waxy oil, the pipeline will be heated with thermal electricity generated using the same crude oil at two power stations in Tanzania along the pipeline.

The line has already been correctly nicknamed “the longest heated pipeline in the world”.

The pipeline is estimated to cost $3.5 billion.

Total is the lead pipeline investor and operator with a 72 per cent share.

Uganda will take 15 per cent shareholding, Tanzania five per cent with the Chinese state company CNOOC taking eight per cent. Total and CNOOC are the two investors in the oil production development in Uganda.

For President Museveni, this is indeed an emotional milestone having personally stewarded the Uganda oil project for 15 years since oil discovery in 2006.

Depending on when the final draft international standards (FIDs) are signed, it is possible to simultaneously complete the oil production and transportation infrastructures in four years and export the first oil through Tanga in 2025.

The Uganda Oil investments are happening at a time when global oil prices are recovering with prospects of sustained prices in the $60-70 range as global oil demands recover helped by the ongoing Covid-19 vaccinations.

Indications are that Uganda oil production break-even costs are low enough to permit profits at these levels of global prices, even after considering about $13 per barrel export pipeline costs.

For Total, the investments will happen at a time when environmental headwinds are strong with the clamour for an energy transition from fossil fuels to renewable energy.

Total will need to demonstrate to its stakeholders and financiers that the Uganda oil projects can be accommodated within Total’s plans for net-zero carbon by 2050. Total and CNOOC are expected to seek about $2.5 billion in international loans.

On its part, Uganda will need to raise its 15 per cent share of the pipeline investment and will have to contend with growing reluctance by major global banks to support new oil projects.

The Ugandan government will continue to face tough anti-oil pressure from globally funded environmental lobbies.

The Uganda oil story is positive news considering the challenges facing other upstream projects in the region.

The Mozambican LNG project, which was the regional star performer, and the only one with FID has recently faced interruptions from an Islamic insurgency.

The liquefied natural gas (LNG) projects in southern coastal areas of Tanzania have over the last five years slowed down as the late President Magufuli came up with requirements for revised LNG legal, regulatory, and fiscal terms. It is also a fact that Kenya’s Turkana oil is at a standstill with the main investor facing financial limitations.

How can Kenya benefit from the Ugandan Oil project?

The Kenyan government should work hand-in-hand with key logistics companies, port authority, railways corporation and Kenya Revenue Authority to tap opportunities to haul transit imports of construction and drilling materials through the Mombasa port.

Whereas Dar is expected to handle most of the pipeline construction imports logistics, chances are that Uganda will rely mainly on the Mombasa port for oilfield materials imports logistics. It is an opportunity that all concerned should immediately commence working on.

Finally, it was encouraging to see President Suluhu make her first foreign working trip to facilitate a project that will add significant value to Tanzania.

Further, many are expecting that she will proactively clear the way for the delayed natural gas projects and facilitate LNG investments.