Uganda’s Energy-Stricken Population Frustrated by Ongoing Setbacks in Oil Pipeline Construction

A contentious pipeline that would allow Uganda to become an oil exporter at long last is facing a further delay to its final investment decision, with Chinese insurance company Sinosure unable to sign off on the project until July, the emerging producer’s minister of energy and mineral development Ruth Nankabirwa told S&P Global Commodity Insights.

The 1,445 km, 210,000 b/d East African Crude Oil Pipeline connects Uganda’s Albertine Graben fields with Tanzania’s Tanga port but has become a key target for Western environmental activists and officials. To Uganda’s chagrin, Western banks have shunned the project, leaving it reliant on Chinese financing.

Without the pipeline, Uganda, which expects to pump its first crude in 2025 and eventually become one of Sub-Saharan Africa’s biggest oil producers, would be unable to sell its barrels to the market.

“Chinese companies that were supposed to engage in the construction need insurance cover by Sinosure,” Nankabirwa said in an interview on the sidelines of African Energy Week in Cape Town. “That one took long to achieve. And recently I was informed…that Sinosure has communicated that they will be able to announce next year around July, which is a very long period.”

Faced with this latest setback for the long-awaited project, the Ugandan government will look to space out the FID, Nankabirwa said.

“There are specific areas where I think we can announce the FID so we can begin. I am going to see how we can stagger the announcements of the FID.”

Drilling has already begun on the Kingfisher and Tilenga oilfields, operated by the China National Offshore Oil Co. (CNOOC) and TotalEnergies, respectively.

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At Kingsfisher, crews have drilled three of the 31 planned wells already. Nankabirwa said a recent suspension of drilling activity following a fatal incident at the field had been lifted after an investigation.

Meanwhile two rigs are currently drilling on Tilenga, with a third starting in November. That larger field will see 426 wells drilled through 31 well pads, Nankabirwa said, with total production expected to reach 190,000 b/d. Kingfisher production will reach 80,000 b/d of crude, she said.

Troubled refinery
Another potential snag concerns the project’s 60,000 b/d refinery, which would also be the country’s first. Negotiations with a consortium including US company Baker Hughes lapsed in June after failing to secure an anchor investor.

As a result, Nankabirwa said, the government is now considering bids from four separate companies – one of them Baker Hughes – and expects to announce the winning bidder within weeks.

“The project framework agreement expired three times. Two times we renewed it. On the third time, time was running out and we opened it up,” she said. “We are now in the process of sorting out which will be able to give us a refinery in the shortest time.”
So far only the front-end engineering design, crude oil supply agreement and environmental impact agreement have been drafted, suggesting the refinery could be years away.

Meanwhile, some communities along the pipeline route still need to be compensated, Nankabirwa said. If the conduit and refinery are not completed by first oil, Uganda risks being saddled with large amounts of crude with no means of exporting or processing it.

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“We hope that we will be able to align all these projects so we don’t get stranded with the crude that has gone through the central processing facility,” said Nankabirwa.

Just transition
The minister also slammed what she dubbed “unrealistic” and hypocritical Western attitudes toward African fossil fuel developments. The EACOP pipeline has become the bete noire of climate groups and one of Africa’s most controversial projects.

TotalEnergies, which holds a 62% stake in EACOP, has faced frequent protests and lawsuits from climate groups, holding up development. Commercial discoveries were first made 20 years ago.

African leaders, ministers and oil and gas proponents have been meeting at the Cape Town conference to discuss how to boost the continent’s energy security, with 600 million Africans still lacking access to electricity.

“The decisions that have been pedaled around suppressing financing fossil fuel will come to an end, because it is unrealistic. Energy transition must be just and realistic,” said Nankabirwa. “We still have parts of our countries in darkness.” She pointed to Europe’s coal use following Russia’s invasion of Ukraine as a symbol of Western hypocrisy.

Nankabirwa was also eager to point out other oil and gas opportunities in Uganda, which holds an estimated 6.5 billion barrels of crude reserves, 1.4 billion of it recoverable.

State-owned Uganda National Oil Co. recently received a license to explore on the Kasuruban block in western Uganda, while Australia’s DGR Energy Global was also handed an exploration license, she said. A third licensing round is also in the works, Nankabirwa said, with just 10% of the Albertine Graben basin explored. “We will continue to exploit all that potential that we have.”

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Roads and transition lines are being planned in conjunction with the neighboring Democratic Republic of Congo to boost regional energy cooperation and electricity generation, she said.

OPEC membership
Nankabirwa also said Uganda would be interested in becoming East Africa’s first OPEC member. South Sudan is a member of the wider OPEC+ alliance.

“I met the [OPEC] secretary general during ADIPEC recently and I told him that I’m about to join,” Nankabirwa joked. “Come 2025…I’ll be an oil producer.”

A membership application from Uganda would likely be welcome, with Secretary General Haitham al-Ghais having expressed an interest in increasing the group’s membership.

“I think it can be exciting if Uganda is one of those who sit and determine for the entire world about prices,” Nankabirwa said. “When that time comes I think I will get the details.”
Source: Platts