Winners in the war in Ukraine

What Uganda is missing

Kampala, Uganda | THE INDEPENDENT | Government of Uganda officials say Uganda is a victim of the war in Ukraine; this in spite of President Yoweri Museveni telling foreign journalist that Uganda has decided not to get involved.

“We do not want to be involved in this and stayed out,” Museveni told the journalists at State house Nakasero in Kampala on March 17.

“We just want security for all in the world,” he said. “Don’t threaten me and I will not threaten you.”

Museveni, however, drew a parallel between the Kremlin’s concerns about NATO and American fears of Soviet missiles in Cuba in 1962, according to a report of the interview by Nikkei, a Japanese publication.

“I was there when U.S. President (John F.) Kennedy almost went to war over the Cuba missile crisis,” Museveni said, “Russians have been worried about some NATO activities. You hear some people say Ukraine is a sovereign country, but Cuba was a sovereign country too, but U.S. President Kennedy objected (to the) deployment of Soviet missiles there. So you find a lot of double standards.”

Museveni’s son, Lt. Gen. Muhoozi Kainerugaba, who is the Commander of the UPDF Land Forces, has been far more outspoken about the Russia-Ukraine war.

He has tweeted: “The majority of mankind (that are non-white) support Russia’s stand in Ukraine. Putin is absolutely right!”

Asked about his son’s comment, the president replied, “He was speaking for himself.”

Whether or not Museveni gets involved in the war in Ukraine or stays out, officials in his government have said the country is being hit by economic shrapnel from the war.

Uganda, like many countries around the world, is experiencing a rapidly worsening outlook for its economy,underpinned by rising food, fuel and essential commodity prices, heightened financial volatility, sustainable development divestment, and complex global supply chain reconfigurations and mounting trade costs.

There has been a steady rise in prices of commodities such as fuel, food, and home essentials. The Consumer Price Index for February 2022 increased to 3.2% from 2.7% in January. The price of a bar of soap has risen from about sh3, 500 in January to between Shs8, 500 and Shs10, 000 by late March. A kilogramme of locally grown rice rose from Shs3000 to between Shs4, 500 and Shs5, 000 and maize flour (posho) from Shs1, 500 to Shs3, 000. The price of fuel has risen over 15% in the last three months and 34% in the past one year.

While explaining why the government appears helpless in the face of the escalating prices, the Permanent secretary in the Ministry of Finance/Secretary to the Treasury, Ramathan Ggoobi, in a statement on March 22 blamed “events that have occurred outside Uganda.”

He blamed the disruptions of global supply chains caused by COVID-19 restrictions and that failure of supply to grow at the same pace as aggregate demand in the revived economies following the lifting of COVID-19 lockdowns.

He added: “The situation has been worsened by the Russia-Ukraine conflict.”

Uganda is listed among the 25 African countries that import more than one third of their wheat from Russia and Ukraine.

As Uganda government officials, including Ggoobi, play the victim card, other countries are sensing long-term growth opportunities from the crisis.

According to media reports, African countries could exploit their natural gas to reduce Europe’s dependence on Russian energy. They say one mega-project likely to benefit from the current scenario is Tanzania LNG – a multi-billion dollar venture that would monetise almost 50 trillion cubic feet of gas discovered offshore.

It is expected that Tanzanian LNG could become a strong gas supplier to Europe before 2030, if construction could start by mid-2023. Reports cite moves by Tanzania’s president, Samia Suluhu Hassan, in that direction.

The reports describe how, in an interview on the sidelines of the European Union (EU)-African Union (AU) summit in mid-February, Suluhu Hassan noted that the tensions in Ukraine are generating growing interest in her country’s gas reserves, which are the sixth-largest in Africa.

According to Energy Capital and Power, Tanzania’s proven natural gas reserves are 57 trillion cubic feet, according to the Ministry of Energy. The Ministry estimates that around 70% of the country’s reserves are recoverable with approximately 50 trillion cubic feet far offshore in the Indian Ocean.

Suluhu Hassan’s nationalist predecessor, the late President John Magufuli, suspended talks with natural gas investors in 2019 to review the country’s production sharing agreement regime. Hassan, however, favours a more business-friendly approach and has revamped negotiations with energy companies in the hopes of attracting$30 billion in foreign investment to revive construction of offshore liquefied natural gas projects in 2023.

Several other countries could similarly benefit from Europe’s energy diversification, including Senegal, where 40 trillion cubic feet of natural gas were discovered between 2014 and 2017 and where production is expected to start later this year. Nigeria, already a supplier of liquefied natural gas (LNG) to several European countries, is also embarking with Niger and Algeria on the Trans-Saharan Gas Pipeline to increase exports of natural gas to European markets. On February 16, the three countries signed an agreement to develop the pipeline,estimated to cost $13 billion. Europe is likely to be a key financer, bolstered by the EU’s controversial decision in early February to label investments in natural gas as “green” energy.

Uganda’s chance?

Uganda gas resources are currently estimated at just 500 Billion standard cubic feet (BCF) according to the Uganda Petroleum Authority. According to worldometers.info, these proven gas reserves as of 2017, ranked the country 74th in the world and accounting for about 0.007% of the world’s total natural gas reserves.

And the International Energy Agency (IEA) has issued a 10-point plan to reduce the European Union’s reliance on Russian natural gas that makes no mention of Africa.  The IEA only sees increased production from Azerbaijan and Norway as likely to provide some additional gas in the short-term.

However, some African leaders see an opportunity. They are moving to address European and global needs at a gathering in Cape Town from October 3rd to 7th for Africa Oil Week. This is the leading energy conference on the continent, according to Paul Sinclair, VP of Energy for Africa Oil Week.

Meanwhile, according to reports, if all goes well, a floating LNG vessel could even start operating in 2023 offshore the neighboring Republic of Congo – where Eni is now fast-tracking the development of a modular and flexible liquefaction project with technology from New Fortress Energy.  It would be the fourth such facility on the continent. By next year, the continent will have three floating LNG vessels in operations in Cameroon, Mozambique, and Senegal/Mauritania.

“Because floating LNG allows development of smaller, or even stranded, gas reserves, it can be implemented across a wide range of assets with a shorter time-to-market. This makes it attractive in an environment where gas supplies need to be secured in record time,” says Mickael Vogel, Director    & Head of Research at Hawilti, the pan-African investment research firm.

Such FLNG projects offer hope for small players like Uganda because they are a lot more flexible in how and where they deliver their cargoes.

“A major reason is that they can rely on shorter supply-contracts of less than 10 years, as opposed to bigger terminals who typically rely on long-term contracts of 13 to 20 years” says Mickael Vogel.

As the current demand for “quick” gas supplies to Europe picks up, several likely African FLNG candidates could gain traction. However, for many countries the opportunity has been lost, at least for now.

New energy frontier

Africa is the new energy frontier, offering a wide mix of energy solutions which could provide long term relief, according to the organisers. This reality is likely to spark increased investment and exploration in coming years.

Exports point out that in this changing global energy landscape, North Africa is much better positioned to increase gas supplies to Europe. Major markets such as Algeria and Egypt are already significant gas exporters to Europe and can rely both on LNG (Liquified Natural Gas) cargoes and gas pipelines to do so.

In March, Algeria announced spare capacity at the Transmed pipeline that could serve to increase supplies to Europe. However, it must choose whether it is willing to jeopardise its strong relations with Russia.

Sub-Saharan Africa is lacking the gas infrastructure required to play a major role in ramping up gas exports to Europe – at least in the short-term. The sub-continent has onshore LNG export facilities in Nigeria, Angola, Equatorial Guinea and one Floating Liquified Natural Gas (FLNG) terminal in Cameroon.

Nigeria, Angola and Equatorial Guinea have been struggling to supply feedstock to their terminals and operate at full capacity after OPEC quotas in 2020 and years of under-investment in limited upstream gas production. Pipelines offer an attractive solution, but not for everyone.

“While pipelines across the Mediterranean have been successfully delivering gas to Europe from North Africa, it remains to be seen whether sub-Saharan African countries can replicate the same success” says Mickael Vogel.

“Nigeria, which holds Africa’s largest gas reserves, has long wanted to supply gas by pipelines via Morocco and Algeria. However, the time required to achieve and commission such projects, if they ever get off the ground, make them impossible contenders in the short and medium terms” he says.

LNG terminals on the rise

Increased African gas supplies to Europe are only likely to come from already-scheduled facilities and deliveries coming from projects that broke ground in recent years.

Before the end of the year, Italian company, Eni, will start production on its Floating Liquefied Natural Gas (FLNG) project off the Mozambique coast. The 3.4 mtpa (million tonnes per annum) facility was successfully moored this month and is only Africa’s second FLNG unit after Cameroon.

TotalEnergies is hopeful to resume construction this year at the Mozambique LNG terminal, whose commissioning is not expected before 2026.  However, most supply contracts secured from the terminal are with Asian traders and off-takers from India, Japan, China, and Indonesia. Consequently, very little capacity is expected to be reserved for the European market. This leaves the door open to other competitors, should they be able to deliver on time, which is unlikely.

According to the report, the reshaping of Europe’s energy security leaves a lot of unanswered questions, chief amongst them is the long-term demand for gas in Europe in the first place. In this ever-changing global gas market, FLNG is the wild card – and one which sub-Saharan Africa would do well to put on the table.

Besides natural gas, further sanctions on Russia might benefit other natural resource exporters in the region. For instance, South Africa is, after Russia, the world’s second-biggest producer of palladium—a critical input into automobiles and electronics—and therefore could experience growing demand as a result of international sanctions placed on Russia.

Similarly, as a major exporter of gold, the South African rand has been strengthening as a result of rising global prices for the precious metal.

Despite these possibilities, in the near term, the invasion of Ukraine could pose hardships for African households, the agricultural sector, and food security. The rising price of oil on global markets—induced by the crisis in Europe—will have direct impacts on the cost of transport.

In fact, South Africa’s Automobile Association is predicting record-high fuel prices to that country. In Zambia,which agreed to cut fuel subsidies in order to adhere to post-pandemic debt negotiations with the International Monetary Fund (IMF), rising costs will make such reforms even more unpopular than they already were. Much to thedisappointment of the IMF, Nigeria alreadybacked away from its plans to cut fuel subsidies after planned protests from labour unions and opposition parties.

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