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Oil and Gas

Situational Analysis of the Oil and Gas Sector (2011)


Petroleum cm06

Petroleum cm06 (Photo credit: Wikipedia)

The oil and gas industry consists of upstream, mid-stream and downstream operations. Upstream operations include exploration and production, mid- stream involves transportation and refining, while downstream operations include distribution and marketing.

Within the national context, major developments in upstream operations are associated with the recent discovery of commercially viable oil deposits. This discovery traces back to geological mappings developed since 1925. In light of the importance of petroleum products in meeting national energy demands and on the country’s terms of trade, Government is keen to capitalize on this discovery.

Over the period 1997 to 2008, a total of USD 500 million private capital had been invested in these upstream operations. Government has invested in infrastructure support including upgrading of roads connecting to exploration sites and undertook various assessments to ensure compliance with international best practice in the exploration processes. These assessments included, among others, Environmental Impact Assessments, Biodiversity Conservation Assessments, and border surveys to mark national boundaries and minimize border conflicts. There have also been improvements in the institutional and policy framework for effective production and management of oil revenues with the approval of the National Oil and Gas Policy 2008. However, the complementary legislations proposed by the policy such as Petroleum Resource Law and Petroleum Revenue Management Law are yet to be enacted.

In terms of potential capacity, reserves are currently estimated at 2 billion Barrels of Oil Equivalent (BOE) as of June 2009, with most of it concentrated in the Albertine Graben region in an area of about 23,000km2. However, oil reserves are likely to increase since exploration is still on-going.

In respect to downstream operations, the average annual growth of petroleum consumption stands at about 5 per cent. Between 2005 and 2007, there was a steep growth in consumption of about 20 per cent as a result of thermal electricity generation using diesel as a temporary intervention in the power sector. Currently, the nation meets all its petroleum needs with imports now standing at 847,603 cubic meters, and estimated at USD 320 million per annum. This constitutes about 8 per cent of total national imports and represents slightly above 20 per cent of total export earnings.

Constraints to the Performance of Oil and Gas Sector

i) Inadequate human resource capacity in terms of numbers and skills; this is exacerbated by the absence of adequate specialized training institutions within the country, and the duration it takes to develop expertise.
ii) High staff turnover in the sector rendering it weak and ineffective in its functions.
iii) Limited bulk transportation means due to the dilapidated rail system, and over reliance on a single transport route.
iv) Insufficient legal, policy and institutional framework.

Objectives, Strategies and Interventions
Upstream
Objective 1 – Scale up oil and gas exploration with a view to increasing the potential capacity of reserves up from 2 billion barrels of oil equivalent.

Strategy 1: Continued exploration in the Albertine and other basins outside the graben.
Intervention Description
i) Carry out continuous geological and geophysical mapping.
ii) Licensing of complement oil companies for exploration and development.

Midstream
Objective 2 – Carry out commercial production of oil and gas and build subsequent infrastructure for distribution, operations and management.

Strategy 1: Develop an appropriate and modern legal and regulatory framework for midstream petroleum segment.
Intervention Description
i) Develop the legal framework.
ii) Develop the attendant regulations to regulate midstream activities, facilities and infrastructure.

Strategy 2: Develop an appropriate institutional framework to monitor, regulate and promote the development of midstream infrastructure/facilities.
Intervention Description
i) Develop the institutional set up for regulation of the activities – capacity/infrastructure, procure monitoring and regulatory systems.

Strategy 3: Refinery development.
Intervention Description
i) Carry out a feasibility study for refinery development.
ii) Project structuring and promotion.
iii) Refinery engineering.
iv) Refinery construction and commissioning.

Strategy 4: Ensure that the oil and gas resources in the country provide maximum optimal benefits to the country and region.
Intervention Description
i) Develop the petroleum utilisation plan.
ii) A study on the transportation options for refined products for distribution in the country and region.
iii) A study on gas requirement for the existing energy based industries for example Cement, Steel, fertilizer, among others.
iv) A study on the exportation options/potential of refined products.
v) A study on gas conversion and processing.
vi) Develop a monitoring and evaluation system.
vii) Develop standards for midstream facilities.
viii) Develop a tariff methodology and third party access procedures for capacity utilisation of midstream facilities.
ix) Develop a licensing framework for midstream facilities.

Strategy 5: Build appropriate and the necessary human resource capacity necessary to oversee, regulate and promote the sector.
Intervention Description
i) Capacity building areas.
ii) Petroleum (midstream) policy development, planning regulation and management of midstream activities and facilities (refineries, Crude oil, transportation, refining and trading (oil supply logistics).
iii) Refinery operations (engineering, analytical, processing among others)
iv) Pricing of refined products, electricity tariff and power production from crude oil, refined products and gas.
v) Operations and regulation of the development, installation, operation and maintenance of midstream facilities.
vi) Industrial conversion of gas and gas processing facilities.
vii) Health safety environment and quality (HSQE) in refineries, pipelines, chemical plants and gas conversion plants.

Strategy 6: Regional cooperation in development of refineries and other midstream infrastructure to achieve regional security of energy supply.
Intervention Description
i) Develop a regional agreement on the development of midstream infrastructure.
ii) Develop a regional agreement on purchase of Ugandan oil and gas by regional countries.
iii) Develop regional supply systems for oil and gas resources; inter state pipelines to distribute petroleum products, inter state rail.

Objective 3 – Build human resource capacity for oil and gas exploration, production, processing and marketing at all levels including artisan, technicians and professionals.

Strategy 1: Develop and retain a pool of national expertise for oil and gas sector.
Intervention Description
i) Strengthen Kigumba Technical Institution to provide training up to international standards.
ii) Train professionals in petroleum fields at Masters level for upstream, midstream and downstream operations.
iii) Train staff in petroleum standards, chemistry, engineering and management.
iv) Facilitate and equip the petroleum downstream department.

Objective 4 – Ensure sufficient stock of petroleum products on the market all the time.

Strategy 1: Restock strategic reserves.
Intervention Description
i) Restock the Jinja reserve.
ii) Complete the construction of the Nakasongola reserve.
iii) Restock the Nakasongola reserve.
iv) Complete the construction of the Gulu reserve.
v) Restock the Gulu reserve.

Strategy 2: Build capacity for the downstream petroleum department.
Intervention Description
i) Train staff in petroleum standards, chemistry, engineering and management.
ii) Facilitate and equip the downstream petroleum department.

Objective 5 – Provide sufficient legal, policy and institutional framework to support private sector participation in the sector.

Strategy 1: Strengthen the policy, regulatory and institutional framework.
Intervention Description
i) Implement the current oil and gas policy.
ii) Expedite the formulation of the national PPP policy to allow more private investment in the sector.

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