Is Uganda Ready For An Oil Boom?

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Uganda is aiming to become a crude oil exporter as the Uganda National Oil Company solidifies plans for a large oil field and pipeline project this year. This builds upon efforts by the government to attract greater foreign investment to the oil and gas sector. In addition, the development of a 60,000 bpd refinery will boost the country’s output. However, Uganda must strike the balance between fossil fuel development and its greenhouse gas emissions. As countries around the world curb their oil production in favor of renewable energy, as a means of decarbonizing, Uganda must manage its carbon output if it hopes to be a successful part of the next phase of international oil. TotalEnergies SE and CNOOC Ltd. have partnered with the state-owned Uganda National Oil Company(UNOC) to develop projects across the country, targeting production levels of 230,000 bpd. Output is expected to commence in 2025. The firms intend to develop two oilfields alongside a $4.2 billion pipeline that will transport crude between Uganda and Tanzania’s Tanga port, based on agreements completed last year. The UNOC plans to sign a final investment decision on February 1st for the project to go ahead.

The heated pipeline is set to be the world’s longest at a length of 1440km. Its heating technology will make it possible to transport highly viscose Ugandan crude and development on the East African Crude Oil Pipeline (EACOP) is expected to start later this year. Total owns a 62 percent stake in the pipeline project, while UNOC and Tanzania Petroleum Development Corp. each have 15 percent, CNOOC holds the remaining share.

As Tanzania does not produce oil itself, this will support the country’s energy security in the coming years. Oil will come from the Kingfisher and Tilenga oilfields in Uganda, a country that is currently thought to have 6.5 billion barrels of oil reserves. However, there have been several hurdles to overcome in gaining approval for the pipeline as environmentalists have continually fought against its construction. They argue that it could be detrimental to the countries’ water sources and could lead to the displacement of many communities. But the potential benefits of the pipeline cannot be overlooked, with the anticipated creation of 10,000 jobs as well as significant economic benefits from the development of the oil and gas industry.

In addition to the oilfield and pipeline developments, Uganda is also investing in its refineries. A 60,000-bpd refinery is expected to be built in Kabaale in the mid-west of Uganda, although it has faced several delays to date. The Albertine Graben Refinery Consortium (AGRC), the developer of the refinery, submitted its front-end engineering design (FEED) to the Petroleum Authority of Uganda (PAU) in late 2021 and it expects the review to be complete by the end of January. However, the environmental and social impact assessment study that started in 2020 has yet to be submitted.

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Executive director of the PAU, Ernest Rubondo, explained that although the refinery appears to be behind schedule, there are plans for it to open alongside the Tilenga and Kingfisher oilfields and the EACOP. “The timelines for the three projects are the same and they all have to move in tandem. But it is also important to appreciate that these businesses operate differently,” he explained.

After years of debate over whether it is viable for landlocked Uganda to develop a refinery, the government finally agreed that it should be built alongside the major pipeline project, with the backing of foreign investors. This will see the country greatly develop its oil industry at a time when the African region is looking more promising for oil and gas. As many countries across Europe and North America pledge their transition away from fossil fuels to renewable alternatives, oil firms are looking to Africa and the Caribbean to develop the next phase of international oil projects. The largely untapped reserves and the potential to develop less carbon-intensive operations at a low cost are making these regions highly appealing to the oil majors.

However, with oil development comes environmental responsibility. Following the recent COP26 summit, there is increasing pressure from powerful state governments and international agencies to decrease the quantity of greenhouse gas being released into the atmosphere. Institutions such as the International Energy Agency suggest the only way to achieve this is to move away from fossil fuel production. But many African countries see this moment as their time to shine, filling the production gap while demand is still high.

At present, Uganda’s carbon emissions are relatively low, accounting for just 0.01% of the global output. But this figure is expected to rise as it develops its oil industry. The government has assured environmental organizations that it will implement several carbon-reducing initiatives across its oil operations. For example, it does not plan to flare or burn gas during the exploration stage, instead, it will use the gas for electricity generation or turn it into liquefied petroleum gas. Rubondo from PAU has also highlighted the plan to use solar power in the oilfields. However, until it is seen, not everyone is convinced.

Uganda has big plans for its oil industry, with backing from some of the world’s biggest oil majors. Hoping to commence works on its oilfield, pipeline, and refinery development this year, it is on track to begin output in 2025. However, as much of the rest of the world turns its back on fossil fuels for renewable alternatives, Uganda will have to implement carbon-cutting initiatives if it hopes to become – and remain – competitive on the international oil stage.

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