Uganda’s oil cash to delay
Jan 24, 2009
UGANDA’S oil production will not begin this year. Industry sources attributed the delay to disagreements over oil prices, construction of the refinery and the tendering process. Hopes for early oil production rose after Tullow Oil, a firm exploring oil
By Ibrahim Kasita
UGANDA’S oil production will not begin this year. Industry sources attributed the delay to disagreements over oil prices, construction of the refinery and the tendering process.
Hopes for early oil production rose after Tullow Oil, a firm exploring oil in the Lake Albertine Graben area, signed a memorandum of understanding with the Government to begin production by September.
The Early Oil Production Scheme (EPS) was expected to boost generation of thermal electricity and end load shedding. It was also expected to lower electricity tariffs.
Also, it would enable Uganda put an end to fuel shortage. It would save about $600m (sh1,200b) per year, which Uganda currently spends on importing petroleum.
However, after the disagreements, not even energy minister Daudi Migereko knows when oil production will begin. He estimates it could take about a year to resolve the issues.
Whereas Migereko said the Government was in negotiations with Tullow Oil to resolve the bottlenecks, analysts privy to the arrangement say the first oil production cannot be earlier than June 2010. Migereko was optimistic that production would not be before 2010.
Early oil production, which will be conducted in Kaiso-Tonya, includes production of 4,000-5,000 barrels of oil per day from Mputa oil wells and a refinery, which will produce diesel and kerosene. It will also include a 50-85MW thermal plant, a transmission line from Mputa to Fort Portal and Nkenda and a distribution power network from Kaiso-Tonya to Hoima.
What is delaying the project?
Tullow Oil has entered into partnership with Jacobsen Elektro, a Norwegian firm to oversee the construction of a 57MW power plant, with the condition that they get a guarantee from the Norwegian state-owned Guarantee Institute for Export Credit (GIEK). However, Government and the companies are yet to negotiate how to share oil revenues.
“The EPS will not take place this year because there is prolonged negotiation over the cost of the refinery and pricing of crude oil.â€
The crude oil price is based on the barrel production amount, if a country is not a member of the Organisation of Petroleum Exporting Countries. Thus, the lower the output, the higher the price.
The price is also dependent on the quality of the oil. All these factors, experts say, imply that local oil will not be cheaper than imported oil.
Tullow Oil, the sources say, insists that the cost of exploration has gone up and that the crude oil price should reflect the investments, which they say, has gone up. But Government, according to the sources, says the local crude oil price should not be at the world market rate.
The plummeting crude oil price on the world market is said to be weakening Government’s power on the pricing of crude oil. Crude oil price on the international market has dropped from $147 a barrel in July last year to around $43 a barrel this week. Analysts estimate that for Uganda’s oil to be commercially viable, the price should be $80 per barrel.
Another drawback in the production is a change in the original production site from the Kabwoya wildlife reserve in Hoima to another site outside the conservation area, according to the expert.
The decision follows GIEK’s conditionality that it would only finance the $800m (about sh1.6t) fuel oil power plant only if the project is relocated outside the game reserve.
Migereko explained that, though the first site had been selected after a study, it was not acceptable to some stakeholders. He also said Tullow Oil submitted its development plan and is yet to apply for a production licence. Without the licence, production cannot start.
Another unresolved issue is the cost of the refinery, sources said. “We need value for money. We are evaluating the cost of the refinery which must be in-line with the market price.
Government is still evaluating the proposed cost of the refinery submitted by Tullow Oil,†said the source.
The Public Procurement and Disposal Authority has also queried the procedure used to award the tender to Jacobsen Elektro.
“The authority wanted to know the guidelines used for the procurement of tenders. This has to be sorted out before the project kicks-off,†said the source.
HISTORY OF OIL IN UGANDA
Most of the oil exploration is taking place in the Albertine Graben area, which stretches from West Nile to the south-western tip of Uganda. It covers 23,000 sq. km.
Expeditions for petroleum exploration were first done by E. J. Wayland in the 1920s and are documented in the 1925 publication Petroleum in Uganda.
Wayland reported up to 52 oil and gas seeps in the Albertine Graben.
Between 1945 and 1980 there was stagnation in oil exploration due to the Second World War.
In 1983, geologists resumed exploration along the Albertine Graben, which showed reasonable oil presence.
In 1985, the Petroleum Unit was formed in the Geological Survey and Mines Department in the Ministry Of Energy And Mineral Development to spearhead exploration promotion. During the same year, the Petroleum Exploration and Production Act took effect.
In 1991, the Petroleum Exploration and Production Department was formed to replace the Petroleum Unit. It commenced geological surveys in the areas identified by aeromagnetic surveys.
Today, the Albertine Graben has been divided into nine blocks, five of which have been licensed to oil companies. These include Heritage Oil and Gas Uganda Ltd (Heritage), Tullow Uganda Operations Ltd (Tullow Oil), Neptune Uganda Ltd. (Neptune) and Dominion Uganda Ltd (Dominion).
Over 15 oil wells with significant quality and huge oil reserves have been discovered. These include Mputa-1, Mputa-2, Mputa-3, Mputa-4, Mputa-5, Waraga-1, Kingfisher-1, Kingfisher-2 and Kingfisher-3. Others are Nzizi-1, Ngege-1, Taitai-1, Kasamene, Warthog, Ngassa, Bufallo-1 and Giraffe-1.
Compiled by Ibrahim Kasita
UGANDA’S oil production will not begin this year. Industry sources attributed the delay to disagreements over oil prices, construction of the refinery and the tendering process.
Hopes for early oil production rose after Tullow Oil, a firm exploring oil in the Lake Albertine Graben area, signed a memorandum of understanding with the Government to begin production by September.
The Early Oil Production Scheme (EPS) was expected to boost generation of thermal electricity and end load shedding. It was also expected to lower electricity tariffs.
Also, it would enable Uganda put an end to fuel shortage. It would save about $600m (sh1,200b) per year, which Uganda currently spends on importing petroleum.
However, after the disagreements, not even energy minister Daudi Migereko knows when oil production will begin. He estimates it could take about a year to resolve the issues.
Whereas Migereko said the Government was in negotiations with Tullow Oil to resolve the bottlenecks, analysts privy to the arrangement say the first oil production cannot be earlier than June 2010. Migereko was optimistic that production would not be before 2010.
Early oil production, which will be conducted in Kaiso-Tonya, includes production of 4,000-5,000 barrels of oil per day from Mputa oil wells and a refinery, which will produce diesel and kerosene. It will also include a 50-85MW thermal plant, a transmission line from Mputa to Fort Portal and Nkenda and a distribution power network from Kaiso-Tonya to Hoima.
What is delaying the project?
Tullow Oil has entered into partnership with Jacobsen Elektro, a Norwegian firm to oversee the construction of a 57MW power plant, with the condition that they get a guarantee from the Norwegian state-owned Guarantee Institute for Export Credit (GIEK). However, Government and the companies are yet to negotiate how to share oil revenues.
“The EPS will not take place this year because there is prolonged negotiation over the cost of the refinery and pricing of crude oil.â€
The crude oil price is based on the barrel production amount, if a country is not a member of the Organisation of Petroleum Exporting Countries. Thus, the lower the output, the higher the price.
The price is also dependent on the quality of the oil. All these factors, experts say, imply that local oil will not be cheaper than imported oil.
Tullow Oil, the sources say, insists that the cost of exploration has gone up and that the crude oil price should reflect the investments, which they say, has gone up. But Government, according to the sources, says the local crude oil price should not be at the world market rate.
The plummeting crude oil price on the world market is said to be weakening Government’s power on the pricing of crude oil. Crude oil price on the international market has dropped from $147 a barrel in July last year to around $43 a barrel this week. Analysts estimate that for Uganda’s oil to be commercially viable, the price should be $80 per barrel.
Another drawback in the production is a change in the original production site from the Kabwoya wildlife reserve in Hoima to another site outside the conservation area, according to the expert.
The decision follows GIEK’s conditionality that it would only finance the $800m (about sh1.6t) fuel oil power plant only if the project is relocated outside the game reserve.
Migereko explained that, though the first site had been selected after a study, it was not acceptable to some stakeholders. He also said Tullow Oil submitted its development plan and is yet to apply for a production licence. Without the licence, production cannot start.
Another unresolved issue is the cost of the refinery, sources said. “We need value for money. We are evaluating the cost of the refinery which must be in-line with the market price.
Government is still evaluating the proposed cost of the refinery submitted by Tullow Oil,†said the source.
The Public Procurement and Disposal Authority has also queried the procedure used to award the tender to Jacobsen Elektro.
“The authority wanted to know the guidelines used for the procurement of tenders. This has to be sorted out before the project kicks-off,†said the source.
HISTORY OF OIL IN UGANDA
Most of the oil exploration is taking place in the Albertine Graben area, which stretches from West Nile to the south-western tip of Uganda. It covers 23,000 sq. km.
Expeditions for petroleum exploration were first done by E. J. Wayland in the 1920s and are documented in the 1925 publication Petroleum in Uganda.
Wayland reported up to 52 oil and gas seeps in the Albertine Graben.
Between 1945 and 1980 there was stagnation in oil exploration due to the Second World War.
In 1983, geologists resumed exploration along the Albertine Graben, which showed reasonable oil presence.
In 1985, the Petroleum Unit was formed in the Geological Survey and Mines Department in the Ministry Of Energy And Mineral Development to spearhead exploration promotion. During the same year, the Petroleum Exploration and Production Act took effect.
In 1991, the Petroleum Exploration and Production Department was formed to replace the Petroleum Unit. It commenced geological surveys in the areas identified by aeromagnetic surveys.
Today, the Albertine Graben has been divided into nine blocks, five of which have been licensed to oil companies. These include Heritage Oil and Gas Uganda Ltd (Heritage), Tullow Uganda Operations Ltd (Tullow Oil), Neptune Uganda Ltd. (Neptune) and Dominion Uganda Ltd (Dominion).
Over 15 oil wells with significant quality and huge oil reserves have been discovered. These include Mputa-1, Mputa-2, Mputa-3, Mputa-4, Mputa-5, Waraga-1, Kingfisher-1, Kingfisher-2 and Kingfisher-3. Others are Nzizi-1, Ngege-1, Taitai-1, Kasamene, Warthog, Ngassa, Bufallo-1 and Giraffe-1.
Compiled by Ibrahim Kasita