Uganda’s ambitious first oil chase

The implementation plan also provides for the three commercialisation options for the petroleum resources in the Albertine Graben as agreed namely; petroleum to power generation, development of a refinery, and export of crude oil by pipeline “or any other viable option.”

The government insists that the refinery to be developed in Uganda will have the right of first call on the produced oil before consideration of export. The plan is for 30,000 barrels of pumped oil per day to be refined in the country. It would rise to 60,000 barrels of oil per day. The rest of the oil is expected to be exported through a pipeline from Kabaale in Hoima District, in western Uganda through to Tanga in Tanzania on the Indian Ocean coast.

Rystad Energy Insight’s Poulsen told The Independent it could take two years from first oil before Uganda’s oil production will exceed domestic demand.

“That will give some leeway regarding the pipeline; however, a refinery would need to be in place before first oil,” he says. Poulsen said it is only around 2023 that Uganda will probably produce at an annual average 35,000 bbl/day of crude oil.

But Rossini Paul Silveira of Silveira Energy Consultants Africa; a petroleum engineer, says because at the moment the government does not know when exactly the construction of the oil refinery or pipeline will start, it would be hard to talk about timelines. Silveira says he has over 25-years of experience and has worked on projects similar to Uganda’s in Australia, Nigeria, the U.S., Indonesia, and the Middle East.

“Can we build a refinery in two years, I don’t know,” he says, “Until that is decided, we can’t say.

“We still have bottlenecks mainly around the critical infrastructure projects: the refinery and the two pipelines (the 200km refined products pipeline to Buloba and the 1400km crude pipeline to Tanga port), he notes.

“If the refinery were to be built in Mombasa, everything would come by sea, but in the interior of Uganda, the best thing to do would be railway but it is not there, so everything has to go there by road.”

Silveira told The Independent on Sept.2 that if the government wants to meet the deadline, most of the machinery that needs to be put in place would have to be built in countries such as Singapore, UAE where there is expertise including manpower or even Dar es Salam or Mombasa.

“If we want to do it in Uganda, we are like four years behind schedule because of manpower and expertise issues but if we want to do it outside, we might be two years down the line. We should have started these two years ago. We have switched back to zero because we are yet to decide on the lead investor for the refinery.”

Meanwhile, the three companies with production licenses are now expected to mobilise and invest close to $8 billion (about Shs 27 trillion) for the infrastructure required, including drilling of about 500 wells, construction of central processing facilities and feeder pipelines, among others.

A case of déjà vu

But according to MoU signed by the three oil firms and the government in 2014, a pipeline has to be in place for the project to be deemed viable considering at least 85% of output has to be shipped out. The pipeline route was also decided upon in April 2016 and will be funded by the oil companies.  Currently, the Resettlement Action Plan study for this pipeline is ongoing.

The government will also need to complete the construction of a refined products pipeline from Kabaale, where the refinery will be to the central storage facility in Buloba, Wakiso District.

The refinery is under similar constrain. When the government announced in early 2015 that a Russian consortium, RT Global Resources, had won the bid to build and operate it there seemed to be a collective sigh of relief.

However, the Russian have faded out of the picture and the government is on a charm offensive to try and woo the South Korean consortium SK Energy which was the “alternate preferred bidder.” Can the infrastructure be ready by 2017 to enable a Final Investment decision? Only the most optimistic think so.

Isaac Shinyekwa, a research fellow at the Makerere University-based Economic Policy Research Centre (EPRC) told The Independent that would require the government to deploy massive resources and for Energy ministry officials to work aggressively behind the scenes.

Uganda’s Energy sector is no stranger to unmet timelines. Being landlocked, with little supporting infrastructure also always meant it was going to take a long time to produce oil even in an ideal scenario.

When the government announced the award of the first ever production licence to CNOOC on September 25, 2013, for example, the government said they expected CNOOC to pump oil within four years. That means Uganda should be just months away from pumping first oil. But it is not.

So why were the Energy ministry top officials and chief executive officers from the oil companies hugging and exchanged excited winks on that hot Tuesday Aug.30 afternoon when the Tullow and Total production licenses were granted?

Is the ecstatic mood inside the boardroom at Amber House, the home of Uganda’s Ministry of Energy and Mineral Development in Kampala to be understood as a celebrate of, at least, reaching the end of the long road  since September 2013 when CNOOC was granted the first production license?

Silveira, the petroleum engineer, says the companies have done the groundwork (as far as FID is concerned).

“So 18 months is realistic because companies right now have a clear understanding of how they will do it, in how many phases and the cost implications for each phase,” he says adding that the Final Investment Decision process can take about six months while the phase from Front End Engineering Design to production could take at least one-and-half years making the entire duration two years. So, in his view, it is doable. However, he says, the big question remains: “Is it possible to have the refinery within two years?”

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editor@independent.co.ug