Will Uganda be selling oil by 2020?

On August 30, Uganda handed Tullow Oil plc and Total E&P eight production licences in a move to pick up the pace in commercialising the vast petroleum reserves in the Albertine basin.

But, observers say, while the issuance of licences is a major step forward, a lot still needs to be done to realise actual production.

These processes, experts warn, may not necessarily fit into President Yoweri Museveni’s plans to have oil flowing by 2018 for early production and 2020 for full production, a reality that potentially has a direct impact on political dynamics in the country.

The licensed areas contain 5.4 billion barrels of crude in place out of the overall discovery volume of 6.5 billion barrels. The fields, however, will not come on stream at the same time.

“The granting of production licences now paves the way for the joint venture partners and other stakeholders to consider significant long-term capital and infrastructure investments in Uganda,” said a joint statement by the partners.

The companies estimate that they will invest over $10 billion, an amount a fourth higher than the government’s estimate of $8 billion. So far the companies say they have invested over $2 billion since the farm down in 2012. British firm Tullow Oil Plc made $2.9 billion in the farmdown to Total E&P and China National Offshore Oil Company (CNOOC).  

A tentative roadmap suggests that actual production is set for 2022, but the government insists that first oil is possible in 2020.

“The companies are expected to work towards reaching final investment decision within 18 months after issuance of the production licenses and first oil production in the year 2020,” said Irene Muloni, Energy and Mineral Development Minister.

Total operates Block 1 while Tullow operates Block 2 and CNOOC Block 3A.  Each partner owns 33.3 per cent in each block. CNOOC was issued with a production licence for one field in 2013. The government will own 15 per cent shares in the oil blocks.

READ: Uganda issues 8 production licences to Tullow Oil, Total

In a tweet in June 2015, President Museveni said, “When our oil starts flowing in 2018, or if we can get funding that is not borrowing, we shall build additional electricity generating capacity.” He repeated it in his State of the Nation address in June 2016.

Museveni, who during the campaigns termed it “my oil,” pegged the growth and development of the economy and ultimate improvement in livelihoods and service delivery to oil revenues.

The 2018 deadline therefore has been interpreted as a desperate move to deliver the oil ahead of the next major election in 2021, an important timeline for the fortunes of the ruling party and its chairman, President Museveni.

“That statement would have added to a string of political promises creating an imagery of hope among the people that oil production will turn around their fortunes. It will instead be a debacle when 2018 comes and there is no oil,” said Crispy Kaheru, co-ordinator of citizens Coalition for Electoral Democracy in Uganda. 

The oil project is expected to play a key role in the coming elections partly because Museveni’s government is banking on the petrodollars to fund several ambitious projects running into billions of dollars in its push for transformation. The government has set a target of 2020 for the country to attain middle-income status.

Little to no actual work has begun on key infrastructure for oil production.

Uganda’s geographical location makes it difficult to start production without fixing the necessary infrastructure. Comparing Uganda to Ghana that discovered oil almost at the same time, Tullow explained that the latter enjoys the advantage of being an offshore well where oil is shipped to international markets from the drill site.

Need for a pipeline

Uganda, like DRC, Ethiopia and Rwanda, is a landlocked country with no easy access to the sea, implying that the oil will have to be transported to Tanga port in Tanzania through a pipeline.

Owing to the waxy nature of Uganda’s oil, the pipeline will need to be heated, which calls for a steady supply of electricity at all times.

The road and railway networks required are a cross-border issue- requiring Uganda to work closely with neighbours — Kenya to the east and Tanzania to the south —to fix the necessary infrastructure.  Although Uganda is working on the roads, the workload remains enormous as it needs to revive the rail system all the way to Pakwach, west of the Nile.

In an earlier interview, Total E&P told The EastAfrican that the equipment needed for establishing both the upstream and downstream infrastructure would weigh one million tonnes, signifying the need for a rail system and modern highways for transportation.

On top of that, the public should expect an increase in traffic flow by 10 per cent on the highways all the way from the port. Given an interrupted flow of work, the companies said they require 36 months to go through the concession leading to actual production, on top of the 18 months needed to make final investment decisions.

In coming months, the companies will be making detailed technical, environmental and social studies. Upon completion, they will then make a final investment decision.

When that has been done, a detailed engineering and construction of infrastructure will start and that is what will lead to first oil.

“The oil companies and the government of Uganda will have to collaborate very closely to achieve first oil as soon as possible,” said Ahlem Friga-Noy, Total’s corporate affairs manager.

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