Govt Briefs Editors on Uganda’s Oil Sector

Written by Bernard Tabaire

Uganda will develop a refinery to process 60,000 barrels of oil per day by 2020 contrary to recent media reports that it had settled for half that volume, a senior government official has said.

“A refinery of 60,000 barrels should be developed unconditionally,“ Mr Fred Kabagambe-Kaliisa, the permanent secretary in the Ministry of Energy and Mineral Development, told senior journalists in Kampala on April 16.

The modular refinery the government is considering will, however, start with a processing capacity of 30,000 barrels per day by the end of 2016 before doubling that figure before 2020 as production rises. Any excess oil will then be exported in crude form via pipeline to a seaport on the Indian Ocean in neighbouring Kenya. Uganda estimates to pump up to 200,000 barrels of oil per day at peak production.

“A pipeline of throughput [capacity/quantity] of 120,000 barrels makes economic sense,” said the permanent secretary. A petroleum geologist, Mr Kabagambe-Kaliisa came with a technical team from the ministry’s petroleum department.

Oil companies have been pressing the government to dump the idea of a refinery and focus solely on exportation of crude via pipeline. The government has, however, rejected the suggestion on the basis of feasibility studies that have shown a refinery to be profitable.

A refinery would produce such finished products as paraffin, diesel, petrol, jet fuel, lubricants, and greases.

Tullow, TOTAL and China National Offshore Oil Corporation are the companies operating in Uganda.

The country has 3.5 billion barrels of oil in place of which it expects to extract 1.2 billion barrels over nearly three decades. With better technology the recoverable oil (what would be extracted) could go up to 1.7 billion barrels, Mr Kabagambe-Kaliisa said.

The current estimates of oil in place are based on what has been explored so far, which is about 40 per cent of the Albertine Graben, Uganda’s oil-rich basin.

At the heart of the refinery story is an old tension – because of differing strategic interests – between international oil companies and governments. Oil companies aim to produce and export crude quickly, recover their costs, make a profit and move on to the next hot oil country. Governments, on the other hand, seek slow and deliberate production to avoid early depletion of the oil resource. They also seek to protect the environment and develop local capacity.

Besides, Mr Kabagambe-Kaliisa said, too much money that comes into the country too quickly could harm the economy. Quick production could also destroy oil reservoirs in the ground.

In Uganda there are companies that have deliberately understated how much oil they can get out of particular fields because they are in a hurry to do just enough to make a profit.

Consequently, the government has recently rejected a field development plan by one company that projected to extract 7 per cent of oil in one field, yet the government expects an average extraction rate of 30 per cent.

Field development plans contain information about issues such as the technology to be used in extracting the oil, how much of it, how long it will take to extract the envisaged volumes, and where it will go.

Former editors Peter Mwesige and Bernard Tabaire, co-founders of the African Centre for Media Excellence, attended the meeting. ACME has taken the lead over the last two years in training journalists in Uganda and Ghana in covering the extractive industry encompassing oil, gas and mining.

Mr Kabagambe-Kaliisa told the journalists that oil was “an industry of knowledge”, which could be easily disrupted by inaccurate reporting.

The breakfast meeting was part of implementing the ministry’s communication strategy, which aims to “improve stakeholders understanding of Uganda’s oil and gas sector and promote transparency and accountability as well as generate national and international support for the development of the sector through information dissemination, exchange and sharing”.

Monitor Managing Editor Daniel Kalinaki, who spoke on behalf of the editors, urged the Ministry of Energy to organise more such events for journalists, who he said were doing “a lot of learning on the job”.

Other information shared included:

• 40 per cent of the Albertine Graben has been explored
• 21 discoveries have been made
• 89 wells drilled, with 77 having oil in them (87 per cent success rate)
• Paraa and Buliisa fields are under appraisal
• 36,000 barrels of oil (test crude) have been extracted from 16 wells and stored under the extended well testing programme
• Field development plans are being developed for Mputa, Nzizi and Kingfisher
• The new main oil law – The Petroleum (Exploration, Development and Production) Act, 2012 – became law on April 5, 2013
• The new law repealed the 1985 law – The Petroleum (Exploration and Production) Act
• A new modal production sharing agreement is in the offing in light of the new law
• Uganda consumes 27,000 barrels of oil equivalent per day
• Uganda’s consumption is growing at rate of 7 per cent per year
• By 2016/17, Uganda, Rwanda, Burundi, and eastern DR Congo will consume a combined 60,000 barrels of oil equivalent per day, hence Uganda’s talk of a refinery of the same capacity
• Uganda could produce up to 200,000 barrels per day at peak production for 25 years, considering a conservative 1.2 billion barrels of recoverable oil
• Before the refinery becomes ready in 2016, any oil and gas produced will be used for generating electricity
• Because the Albertine Graben is an ecologically sensitive area, Uganda Wildlife Authority has hired 100 rangers to work with oil companies and file daily reports