26 February 2014

Uganda Races Against Time On Oil Infrastructure Plan

Uganda's oil industry faces a tight race against time to put in place the infrastructure needed before the first barrel can be produced.

At a dialogue with civil society organisations at Hotel Africana last week, government revealed a detailed infrastructure plan, with the most crucial items being the refinery and the pipeline. The government has already committed itself to building a refinery in Kabaale parish in Hoima- a project expected to last three-to-five years. The land for the refinery is not yet fully secured, while the lead investor is yet to be identified.

In his presentation at Hotel Africana, Dozith Abeinomugisha, a principal geologist in the Petroleum Exploration and Production department (PEPD), discussed key infrastructure needed to feed the refinery - including three internal crude oil pipelines. These are the 97-kilometre northern pipeline from Nwoya and Buliisa oil fields, the 50-kilometre pipeline from Kingfisher [Buhuka, Kyangwali sub-county], Hoima district and another pipeline from Kaiso-Tonya.

According to the ministry of Energy and Mineral Development sector review report 2013, a study for internal crude pipelines was concluded in March 2012 but two years down the road, procurement and actual design of the pipelines are yet to start. The construction and development of these crude pipelines will be facilitated by the oil companies, according to the report.

In addition to the pipelines, Abeinomugisha said, the country will need three central processing facilities (CPFs). A CPF is basically 'the first refinery', where oil is "stabilised" before it becomes tradable crude. From the underground, oil is mixed with sand, water, gasses and other impurities, so the CPF is where these impurities are removed from the oil.'

According to Abeinomugisha, Uganda will need one CPF in Buliisa for the northern fields, another CPF at Kaiso-Tonya, and a third one near the Kingfisher field. Before the process of refining starts, the country will have to also first construct a storage facility in Buloba, off Mityana road, in Wakiso district. This is important because once production starts, any excess crude can be stored at Buloba.

The storage facility is also important in that during periods when there is no refining [maybe when the refinery has been shut down for maintenance], crude can be stored at Buloba.

"We shall need to construct a 205-kilometre pipeline from Hoima to Buloba," Abeinomugisha said.

He added that the recent MOU between the government and oil firms was important because it put all these into consideration and emphasised a base-wide harmonized development plan as opposed to each operator developing a field independently.

Export pipeline

Government and the oil firms agreed in principle to develop an export pipeline to the East African coast. According to Abeinomugisha, there are three proposals for the crude export pipeline.

The first proposal is a northern crude pipeline that runs from Hoima via Karamoja-Lokichar basin in Turkana [northern Kenya] to Lamu with a possibility of linking at Lokichar with another crude pipeline from South Sudan. This pipeline is 1,380 kilometres and it involves the setting up of a storage facility at Lokichar.

The second export pipeline proposal is the central route. The 1,300-kilometre pipeline is proposed to go through Nairobi to the coastal port of Mombasa. This is arguably the shortest route.

The third proposal is the southern route that will have to go through Tanzania to Dar es Salaam. This is the longest route with 1,950 kilometres. Currently, Abeinomugisha said, East African leaders are in favour of the northern route that brings South Sudan on board.

"But the actual designs and details of the export pipeline will be done later," he said. Most of the infrastructure is expected to be largely funded by oil companies and other independent investors.

Expanding refinery

Although, according to the MoU, government is to construct an optimal size refinery of 60,000 barrels per day, Abeinomugisha says, there are also proposals of expanding the capacity with time.

"After we have started producing 60,000 barrels-per-day, we shall still study the market and see if there is need to expand it. If the market is still available, we shall expand it," he said.

He says the country currently consumes barely 30,000 barrels of petroleum products per day and spends approximately $1bn dollars importing petroleum products. But the consumption rate is increasing at a rate of seven per cent annually, and therefore with time, the country will expand the refinery to meet the increasing demand.

He also notes that the government has to move carefully not to repeat the mistakes of other African countries that have built refineries that later became idle. Many African oil-producing countries have refineries that are inefficiently run and end up importing petroleum products.

Nigeria, for instance, has four refineries but the country imports most of its petroleum products.

"In order to ensure that the refinery is efficiently managed, that is why we decided that a private investor owns majority shares [60 per cent] and government 40 per cent, such that the investor can be able to take decisions," he said.

All these projects will require land involving compensating thousands of people. History has shown that in Uganda the process of land acquisition is usually sluggish. This puts to question Uganda's ability to meet its target year of 2018 for oil production.

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