9 January 2017

Uganda: Oil and Gas Boom in 2017

Photo: Felix Warom Okello /Daily Monitor
Leaders visit oil wells.

Setting up an oil refinery remains a big headache for the country's oil and gas resources

Optimism is the mood as the countdown to Uganda's first oil continues and pressure mounts on the government to put in place critical infrastructure necessary for oil production in four years.

"The government should have a new player for the refinery by February," says Don Bwesigye Binyina, the executive director of the African Centre for Energy and Mineral Policy (ACEMP), a Kampala-based non-profit.

Binyina says the right policies, legal and institutional frameworks are all finally in place and the pace for building this infrastructure should pick up this year.

Binyina's bullish mood is a carryover from the excitement in August 2016 when the government granted eight oil production licences to Tullow Uganda Operations Pty Ltd and Total E&P Uganda B.V. It was the green light the oil firms and other sector players had been waiting for to move into the development phase. The main task now is to put in place essential infrastructure.

This infrastructure includes a 60,000 barrels-per-day Greenfield refinery, a crude export pipeline and a products pipeline-- facilities which are needed almost at the same time.

Negotiations over Uganda's oil refinery-- expected to be developed in two phases of 30,000 barrels-per-day each, with the first one expected to be completed in 2020--were halted when RT Global Resources, a subsidiary of Rostec, a Russian state corporation pulled out after giving new 'unfavourable conditions' to the government.

Binyina says the search for the refinery investor will have to come to an end as soon as possible if the government means business of producing oil by 2020.

Investments in oil and gas to hit $20bn

Ernest Rubondo, the executive director of the Petroleum Authority of Uganda recently told the Uganda Chapter of the Society of Petroleum Engineers that investments in Uganda's oil and gas industry will hit the US$20b mark, between now and when Uganda eventually starts producing oil in 2020.

These investments could include at least three new companies bringing in new money as they explore for more oil in the Albertine Graben once negotiations with the government over Production Sharing Agreements are concluded.

The entry of new exploration companies in the country should be a sigh of relief for the government that is interested in licensing of more acreage in the country in order to expand the country's hydrocarbon resource base.

Experts in the sector say the two-year slump in the oil and gas industry could finally be coming to a close. An annual survey released in September by Deloitte, an international audit and financial advisory firm reported that about 60% of oil and gas professionals believed the recovery had already began or would begin in 2017.

Even though the current state of the oil and gas market was far from the desired situation, top oil and gas executives showed renewed confidence in an industry recovery.

Those interviewed by Deloitte pointed to expectations of rising prices, a return to increasing capital expenditures and headcount as drivers of their optimistic outlook. Deloitte's survey reveals that right from the upstream to downstream level; most respondents expect to see an increase in capital expenditures in 2017.

In fact, the upstream sector-- which took the hardest hit in this downturn-- is the most optimistic about a recovery, followed by the midstream.

The return of optimistic sentiment indicates that the industry downturn may finally be over, and suggests low to modest industry growth over the next year, with a full recovery by the end of the decade.

Local content

Whatever the sentiment, Emmanuel Mugarura, the chief executive officer of the Association of Uganda Oil and Gas Service Providers says the next phase of Uganda's oil and gas development will find interested local companies more prepared than they were three years ago.

Many companies, especially those involved in logistics, transport, warehousing, camp management and catering services are in a better state than they were in 2013, Mugarura says.

He says the association has not only sent their staff for training but it is also trying to encourage local partnerships.

Close to 30 companies, including those involved in logistics, transport, construction, warehousing and waste management have had their staff trained on health, safety and environment standards, one of the important requirements that are required to operate in the industry.

"Instead of waiting for Threeways to get a European partner, we are now saying, let Threeways, Bemuga, Globetrotters and Spedag build a consortium such that if the oil companies want 200 trucks, each of them can contribute 50 and get the contract," he said.

Irene Muloni, the Energy and Mineral Development Minister recently said the government is in 'fast-track mode' in building infrastructure for oil production.

According to a heads-up report presented to Parliament on Dec. 8 by Peter Lokeris, the minister of state for Minerals, the government and the three oil companies are taking all the necessary steps in accordance with the implementation schedule of the memorandum of understanding.

Already, the route survey for the 1,445 kilometre, 24-inch-diameter-heated pipeline route is ongoing using LIDAR technology. Lokeris said the Uganda section has been completed, while the Tanzania section is expected to be ready by February.

Lokeris also told Parliament that the crude oil pipeline is planned to be developed with an integrated utility corridor which will accommodate a highway, power transmission, and ICT infrastructure corridor in Uganda, with the objectives of optimizing land use and reducing the environmental footprint for the various infrastructure, sharing of utilities, and enhancing infrastructure security.

The detailed routing of the corridor, together with the environmental baseline survey studies were completed in September 2016 and the government is in the process of procuring a consultant to undertake a Resettlement Action Plan (RAP) study for the acquisition of land for the crude export pipeline from Hoima to Tanga.

Lokeris added that the RAP study for the feeder pipeline from the central processing facilities (CPF) in the Kingfisher Development Area which is at the northern tip of Lake Albert will also take off soon and this activity will be followed by the Resettlement Action Plan study.

The three joint venture partners operating in the Albertine Graben have embarked on the process of acquiring land for the development of infrastructure to facilitate production of oil.

Chinese oil firm, CNOOC Uganda Limited, has already conducted a RAP study for acquisition of land for its facilities in Buhuka and a report has already been submitted to the chief government valuer for approval.

Tullow Uganda Operations Ltd and Total E&P are also expected to undertake joint land acquisition for their areas of operation in Buliisa and Nwoya.

The companies have together undertaken a Land Access and Resettlement Framework (LARF) in Nwoya and Buliisa areas where extensive consultations with communities were done last year.

While the land for the storage terminal at Buloba has already been acquired, the resettlement action plan study for the infrastructure corridor which will host the 200km refined products pipeline from the refinery in Hoima to the storage and distribution terminal at Buloba near Kampala is ongoing.

Lokeris also told Parliament that the government has concluded the acquisition of 29 sq. km of land in Kabaale parish in Hoima for the development of a petroleum-based industrial park that will host the oil refinery, an international airport, and petrochemical industries among others. More than 98% of the project affected people who opted for cash compensation have been paid.

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Uganda

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