Oil and gas production to increase iron, steel demand opportunity

INDUSTRY |

As Uganda prepares to process oil and gas, many sectors are bound to benefit from the venture 

The oil and gas production will heighten demand for iron and steel, according to the Petroleum Authority of Uganda (PAU). Citing Front- End Engineering Design (FEED) studies, indicated that 1.5 million tonnes of iron and steel products will be needed for establishing the oil production facilities. 

The FEED studies for the field development projects indicate that iron and steel will be the "most" important metals to be used used to establish facilities for production, processing, and distribution of refined products. The facilities in the upstream phase include two central processing facilities and feeder pipelines at Kingfisher and Tilenga in Hoima and Buliisa districts, respectively.

Others are a multi-purpose product East Africa Crude Oil Export Pipeline (EACOP), which is a 1,445km long heated, 24inch diameter structure that will transport crude from Hoima. The others are the industrial park and a 60,000 barrel-per-day refinery.

The players hope that the construction of the aforesaid facilities will trigger a huge demand for iron and steel and a massive local metal casting industry.

Importing steel

A January 2018 bulletin prepared by the National Planning Authority (NPA), indicated that Uganda still imports iron and steel.

It showed that the country imported steel and iron products worth $280m and exported only $86m worth of the same products, the same year reflecting a trade deficit of $194M.

It is not clear if the country has the required quantities and quality of metals needed for the industry. Scientists say, crude oil from the ground contains substances such as hydrogen sulfide and sulfur, which induce corrosion in pipelines, which requires a certain kind of steel.

Since Uganda's oil is waxy (solidifies at room temperature), it also has to be heated to temperatures higher than 10000F to be liquefied for easy transportation.

This, the scientists say, calls for the steel to be brittle and hard like carbon, molybdenum, titanium and chromium, which are corrosive resistant steel alloys and can withstand all of these problems.

Steel capacity

Last October, PAU met iron and steel products fabricators and manufacturers to sensitise them about the requirements and the acceptable standards. This was after noting that the capacity to supply these two to the oil industry was still low.

Gloria Sebikari, PAU's communications manager, said her organisation is working with the Uganda National Bureau of Standards to document the standards required. This, she said, is intended to help the players to meet international certification standards to be able to supply to the petroleum and natural gas industry.

She said before the end of the year, PAU would engage a consultant to assess the fabricators and steel manufacturers' capacities, document their concerns, assess gaps, take stock of the existing facilities and emphasise areas for improvement. 

Steel and production 

Uganda's annual iron and steel production stands at 501,700 tonnes, about 165,000 tonnes  (32.89%), of which is produced from scrap and raw iron ore.

According to NPA, 67.11% (485,200 tonnes) of raw materials for iron and steel making in Uganda are imported. This does not take into consideration the accessories, such as zinc and aluminium, among others.

However, policy analyst,  political economist and economics lecturer at Makerere University Business School, Ramathan Ggoobi, said the country is likely to still rely on importation of steel to supply the oil and gas sector. He attributed this to what he called leakages in the sector which will take time to fill.

"Although iron and steel are areas identified under import substitution to invest in, it will take time for the local investors to fill that existing gap. There is need for reducing reagents such as coal for powering the industries because the electricity available to produce steel is not sufficient and the nearest we can get (coal) is Tanzania, which will make our steel expensive, Ggoobi said.

He said importation of steel for the oil activities would still save the country's foreign exchange. He advised that there should be a law or decree for only importing goods that cannot be manufactured locally.

"It is normal to import as long as we do not import things which can be produced locally like juice, fertiliser, and footwear," he said.

Goobi said another issue the country faces in harnessing its iron and steel potential is lack of comparative advantage.

"You could have iron ore, but getting the reducing reagents such as coal to produce it is difficult, which would make it so costly. So, there is need to look at opportunity cost of developing such an industry," he added.

However, Stewart Mwesigwa, a business development manager at Roofings Limited, said they are ready to supply the oil sector as long as they are given the specifications of the steel needed.

"We can invest or expand our capacity. The issue can only be lack of awareness of the specifications. We know that a reasonable bulk can be picked from us at the moment," he added.

Mwesigwa said talk that Uganda cannot support all the needed iron and steel is  intended to help those who want to import. He said the same claims were made about Uganda's inability to supply steel and cement for dam construction projects, but were proven wrong.

He said the good news is that the country has large deposits of iron ore as a source of cheap raw material which they are looking at mining.

He said with them exploiting the existing iron ore they hope to create more income to the country through creation of more jobs and technology transfer.  
Steel industry 

The National Planning Authority said this could be the chance for the government to aid growth of a strong integrated local iron and steel industry to facilitate industrial take-off.

This, according to NPA would in turn save the country's foreign exchange, increase employment opportunities and support the "growth of other sectors through forwarding and backward linkages."

"A developed iron and steel industry will put this money into the economy," NPA asserted.

In addition, it stated, there will be increased local content in ongoing and planned projects such as the standard gauge railway, motor vehicle assembly plant, Hoima airport construction, oil roads and electric power dam, among others.

The NPA pointed out that most of the steel being used for these projects is imported and yet the projects are funded by loans. The little manufactured locally rely on steel scrap for steel production.

Sources said the shortage of raw materials particularly billets has led almost all steel processing companies to resort to use of steel scrap for steel production and depend heavily on import to fill the supply deficit. 

In figures 

Uganda's annual iron and steel production stands at 501,700 tonnes, about 165,000 tonnes (32.89%), of which is produced from scrap and raw iron ore.

According to NPA, 67.11% (about 485,200 tonnes) of raw materials for iron and steel making in Uganda are imported. This does not take into consideration the accessories, such as zinc and aluminium, among others.