Infrastructure holds key to EAC oil production

Uganda has been forced to go back to market to find another developer of its proposed oil refinery, following the collapse of the earlier agreement it had with a consortium led by Russia’s RT Global Resources. The collapse of the deal is expected to delay oil production in the landlocked country because even the construction of a pipeline to get the oil to the Indian Ocean has yet to start.Ugandan officials were taken by surprise when the Russian company pulled out from the project abruptly. As if that was not enough, the company that came second in the bid for the refinery, South Korea’s SK Resources, has also declined to take up the offer. It was not clear why SK Resources has declined the offer, but it may be related to the change of the shareholding structure announced by the government after the Russians’ exit. The Ministry of Energy and Mineral Development announced that it would change the project from being private sector-led to public sector-led, meaning the government was to take more shares and allocate a smaller share for the developer.hideUnder the arrangement with the Russians, the refinery was to be constructed through a public-private partnership, with a private lead investor contributing 60% of the investment and Uganda contributing 29.5%, while Tanzania and Kenya took 8% and 2.5% respectively. This has now changed to a new public-led arrangement, however officials said they will still need a lead private sector investor with the modern technology to construct the refinery. “It is back to the drawing board. We are looking for an investor that will partner with government,” says Uganda’s assistant commissioner in the Ministry of Energy and Mineral Development, Dozith Abeinomugisha. The delay in the construction of a 60,000 barrels per day refinery will put the brakes on oil production in Uganda, which was set to commence in 2018. Uganda planned to evacuate the refined oil for export through Tanga Port in Tanzania. The pipeline is to be built by France’s Total. One of the options the country may consider is to export oil in crude form, but experts say that will mean the pipeline must be heated as the Ugandan crude is heavy compared to that of Kenya. Ugandan officials declined to say when the next bidding may happen. The delay comes at a time when relations between Kenya and Uganda are at a low, following Uganda’s refusal to pass the pipeline through Kenya – a move that would have boosted Lamu Port, which is under development. It means Kenya will not be enthusiastic to support Uganda’s quest for a new refinery. Uganda has oil reserves of 6.5 billion barrels, with 1.4 billion barrels recoverable. The refinery was expected to produce diesel, petrol, kerosene, jet fuel, liquefied petroleum gas and heavy fuel oil, while creating thousands of direct jobs. France’s Total SA, China National Offshore Oil Corp and London-based Tullow are developing oil fields in Uganda’s Lake Albert basin. Kenya eyes 2017 production Last month, Tullow Oil Kenya announced that it will be able to produce 2,000 barrels of crude oil per day and have stocks ready for export in June 2017. Kenya is still grappling with how to proceed with the construction of the pipeline from Turkana wells to Lamu Port after the snub by Uganda, but has opted to have oil transported by road from Turkana to Eldoret for onward delivery by train to the port of Mombasa, a distance of 1,089km. Tullow Oil chief operating officer Paul McDade, while briefing President Uhuru Kenyatta, said it is possible to start production by March 2017. Turkana oil reserves so far stand at 750 million barrels, a volume that is considered commercially viable. As part of preparing to construct their own pipeline, Kenya last month signed a Joint Development Agreement with Tullow, African Oil and Maersk Companies, aimed at initiating joint planning for the facility. Construction of the 865km oil pipeline, linking the Turkana oilfields to Lamu Port, is set to start in 2018 and end in 2021 – at a cost of $2.1bn. Several companies including Japan’s Toyota Tsusho, numerous Chinese companies and America’s OPIC have expressed interest in participating in its financing and development. Tanzania gas fuels economy Tanzania has already started production of natural gas, with electricity generated from the resource being credited for a jump in economic growth to 7.9% in the second quarter of 2016, compared to 5.8% during the same period last year. In July, Aminex announced first gas production from its Kiliwani North gas field in Tanzania. Kiliwani North is tied into the regional pipeline infrastructure and will deliver gas to the new adjacent Songo Songo processing plant, ultimately serving the local power market. “The increased production of natural gas has significantly boosted electricity generation in the country,” a statement from the state-run National Bureau of Statistics notes. Last year, Tanzania commissioned a China-backed pipeline connecting offshore natural gas fields to Tanzania’s commercial capital Dar es Salaam. The 535km pipeline was built with a $1.25bn concessional loan from the Export-Import (Exim) Bank of China.The country has also recently announced that it will build a gas pipeline to Uganda as the country says several east African countries have expressed interest in buying its gas. Tanzania announced in February that it has discovered an additional 2.17 trillion cubic feet (tcf) of possible natural gas deposits in an onshore field, raising its total estimated recoverable natural gas reserves to more than 57tcf, most of which is offshore. The huge gas potential has attracted foreign investors, with Nigeria’s Egbin Power announcing two projects to generate 900mw of gas-fired electricity at a cost of $630m. “We plan to set-up two plants, each generating 450mw... all we are waiting for now is government approval,” says chief executive of Egbin Power, Dallas Peavey.

Infrastructure holds key to EAC oil production

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