IMG.gif
OPINION

Uganda’s Troubled Path to Oil Production

Copyright © 2022 Energy Intelligence Group All rights reserved. Unauthorized access or electronic forwarding, even for internal use, is prohibited.
Lake,Albert,Uganda

Uganda expects to reap an economic bonanza from the $10 billion Lake Albert oil project, overseen by TotalEnergies and China National Offshore Oil Corp. (CNOOC). The development should from 2025 start delivering crude oil from the Tilenga and Kingfisher fields to the Tanzanian port of Tanga via a new 1,433 kilometer, 216,000 barrel per day pipeline. The inconvenient truth for both the host nation and developers is that this long-delayed project feels like it is from an earlier era. For sure, the project will provide the government with much-needed revenues, forecast at around $2 billion a year at current oil prices, provide jobs for an increasingly young population, and give Total and CNOOC a decent return on their investments. But it involves a greenfield oil development that includes drilling in a national park, routing a cross-border pipeline through areas of natural beauty and building an oil refinery on the shores of Lake Albert. It lacks the clean energy components that have become commonplace under the low-carbon transition, such as renewable power or other decarbonization investments. And it could still run into funding challenges as more commercial and government lenders tighten rules on fossil fuels.

The Lake Albert development, which received the green light in February after more than a decade of back-and-forth negotiations, has become far too politicized for a project that, in global industry terms, is relatively small. At an industry conference last month in the Ugandan capital, Kampala, the country’s veteran president, Yoweri Museveni, lambasted the EU for criticizing the government for its scant attention toward environmental and human rights issues around the project. “They should calm down, this is the wrong battleground for them,” the 78-year-old former revolutionary told an audience packed full of his supporters. “Leave East Africa alone; we know what we are doing.” Fueling his ire was a recent statement by the European Parliament calling on the Ugandan authorities to allow unhindered access to all Lake Albert oil facilities to NGOs and journalists, and urging Total to spend a year rerouting the related East Africa Crude Oil Pipeline (Eacop) to ensure it avoids any sensitive ecosystems.

The parliament does seem to have overstepped its mark by attacking the project in such explicit terms, especially when it has remained silent on human rights in countries like Azerbaijan, which is now a key supplier of gas to the EU and is being treated with kid gloves. But Uganda is paying the price for having dithered over the project for so long. Had it finalized an agreement with oil companies over a decade ago, when climate change was a less pressing issue, it might have escaped much of the criticism from Europe and elsewhere. Now, the project has become a focal point for environmentalists around the world opposed to continued fossil fuel development.

Total, operator of the $4 billion Tilenga development that will provide the lion’s share of oil for the pipeline, has taken a lot of flak for its commitment to drill in a section of Murchison Falls National Park — not least from the French media — but is getting on with the job. According to its general manager for Uganda, Philippe Groueix, the first drilling rig was due to arrive this month and the second should follow in mid-December. CNOOC, which is in charge of the much smaller Kingfisher project farther south, has already brought in several rigs. Like Total, CNOOC says it is engaging with local communities and complying with all environmental standards. But whereas Total has discussed the ins and outs of the project and given journalists access to some of the facilities, the Chinese firm has been more secretive about its operations.

Work on the Eacop pipeline is also pushing ahead, although the land acquisition process is just beginning and construction is still some way off. The project’s manager, Martin Tiffen, says his team is busy compensating and resettling communities in Uganda and Tanzania that will be displaced by the pipeline, providing them with new homes and hooking them up to banking systems. Addressing concerns that the pipeline could leak oil into pristine areas, Tiffen stressed that the line will all be buried and fitted with state-of-the-art security systems — as is standard practice.

One still-unanswered question around the pipeline is who will fund the $5 billion project. Western commercial banks seem reluctant to get involved, especially as they are being targeted by a group of local and international NGOs in a “Stop Eacop” campaign. French export credit agencies are likely to offer some support, but among industry sources in Kampala, the expectation is that Chinese state banks will come to the rescue, as they so often do in sub-Saharan Africa. The Chinese will, no doubt, argue that they lend using the same criteria as commercial lenders, and that they step in to finance strategic projects in which Chinese companies — including engineering contractors — are represented.

Another project that will need a heavy dose of external funding is the planned new 60,000 b/d refinery in Hoima province, which would run on oil produced from both Tilenga and Kingfisher and would help wean the country off costly product imports from neighboring Kenya. This is Museveni’s pet project and has been in the works for over a decade, but there is every chance it will remain on the drawing board. Proscovia Nabbanja, the head of Uganda National Oil Corp. (Unoc), which is the lead partner in the project with a 40% stake, says financial close is due in mid-2023, but gives no indication where funding for the $4 billion scheme would come from.

Unoc, which came into existence less than a decade ago and has 15% interests in Tilenga, Kingfisher and Eacop, will be one of the chief beneficiaries of the Lake Albert project and has good reason to be excited about the future. It will act as the government’s oil marketing agent, meaning that it will handle most of the barrels lifted from Tanga, and is in the process of setting up a trading division. Less clear is how the money generated from the oil sales will be handled, and whether Uganda will follow the route of other African producers such as Nigeria and Angola in squandering its oil wealth. Uganda expects to make at least $50 billion during the 25-year-plus life of the project, which may seem like a lot but will only cover a fraction of its future spending requirements.

Uganda could do worse than invest a portion of its future oil revenues in electrifying the country. Only 10% of the population are connected to the national grid, and large amounts of wood are burnt as fuel. The gravity of the situation was conveyed by the president of Kenya, William Ruto, in a recent article for the UK’s Guardian newspaper. To tackle the threat of climate change, he argued that Africa as a whole needs to step up its use of clean energy and end its addiction to fossil fuels. “Rather than trudging in the fossil-fuel footsteps of those who went before, we can leapfrog this dirty energy and embrace the benefits of clean power,” Ruto said. Kenya gets 92% of its electricity, and 74% of its overall energy, from renewable sources, he noted — and wants to hit 100% by 2030.

All this said, it can be argued that the Lake Albert development, while somewhat dated, still has its place. As with other producers like Guyana, Suriname and Namibia, it offers an opportunity for a developing country to benefit from its natural resources while it still can. But the project will not transform Uganda’s economy, nor will it provide that many new jobs for its rapidly growing population. And governance issues abound.

Paul Sampson is a senior correspondent at Energy Intelligence based in London. He recently traveled to Uganda.

Topics:
Resource Access, Oil Pipelines, Oil Supply
Wanda Ad #2 (article footer)
#
Coal and gas may last longer in the energy system than oil, which faces multiple, growing threats to its dominance of transport.
Thu, Nov 24, 2022
An easing of sanctions will allow Chevron to resume its local operations and could see Venezuelan crude sent to the US again.
Sat, Nov 26, 2022
Newly elected President Kassym-Zhomart Tokayev is moving his country closer to Europe and China but still can't do without Russia.
Wed, Nov 23, 2022