Uganda’s Oil Boom Is Only Just Beginning

Uganda is set to be a key focus of African Energy Week (AEW) in Cape Town this November, as its flourishing oil industry looks set to boom in the coming years. Uganda’s government has been working hard to encourage more foreign investment recently as the country aims to develop its oil and gas industry significantly over the next decade.

“AEW 2021 has placed Uganda as a top priority in Cape Town. The country’s significant resources, political will, and active local business sector will position the country as a regional leader, warranting an increase in foreign investment and associated developments,” stated NJ Ayuk, Executive Chairman of the African Energy Chamber.

At present, Uganda holds an estimated 6.5 billion barrels of crude oil, far less than African oil leaders Libya and Nigeria but a significant amount in terms of the regional average. This could put it in fifth place regionally for oil reserves if proven, and encourage greater development in the sector. At present, 1.4 billion of these barrels are thought to be economically recoverable. Uganda also hopes to boost its production levels to a peak of 230,000 bpd when fully operational.

In 2020, Tullow Oil, which had been investing in Ugandan oil since 2004, sold its assets to Total, for $575 million, with the French giant set to work in collaboration with China’s CNOOC to further develop the Tilenga and Kingfisher oil fields, alongside Uganda’s national oil company UNOC.

Uganda has been fast-developing the industry since Total’s takeover, commissioning the world’s longest electrically heated pipeline, at a length of 1440km and costing around $3.5 billion. The export pipeline will run from western Uganda to the Indian Ocean port of Tanga in Tanzania, building greater international links for Ugandan oil.

Development on the pipeline is expected to start in the second half of 2022 and the holding company for the East African Crude Oil Pipeline (EACOP) is expected to be ready to start developing the project from September. EACOP general manager Martin Tiffen explained, "First and foremost, 'up and running' implies having the new company, with its management, staff, offices, IT systems, bank accounts, etc, everything that the EACOP project needs in order to function. That's one key part of the puzzle."

At present, UNOC holds a 15 percent stake in the holding company, Total holds the majority at 62 percent and CNOOC holds an 8 percent stake.

But the development of the pipeline is not without its challenges as many have criticized the proposed route of the pipeline and the need to uproot many from their land, potentially damaging farmland and ecosystems as well as forcing several to leave.

Oxfam estimates around 14,000 households have lost land, forcing hundreds to resettle. Sebikari of the Petroleum Authority of Uganda stated, “Land acquisition is a delicate issue because it roots people from familiar places,” explaining that the government has begun paying compensation but “not everyone is expected to be happy.”

One of the main criticisms is that the government does not seem to be making plans for the reinvestment of its new-found oil income into clean energy alternatives for the future. As the country develops its oil industry, there will be calls on the government to invest wisely for when oil demand eventually wanes.

But for now, Uganda is looking to build upon its estimated reserves with concrete evidence to help promote the country as a key African player, approving four new firms in its second oil exploration tender ever this summer.TotalEnergies, Australian DGR Global, Nigerian PetrolAfrik Energy Resources, and Uganda’s UNOC will be developing five oil blocks along Uganda’s border with Congo.

While criticism remains strong, Uganda’s oil industry looks set to pick up over the coming decade, with the potential for new discoveries, greater exportation opportunities, and room for greater foreign investment in the region.

By Felicity Bradstock for Oilprice.com