Uganda wants all of its oil refined domestically

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Mar. 16 -- Uganda's newly appointed energy minister, Hillary Onek, stressing the need of energy independence for her country, said the government wants all of the extra oil recently discovered by Heritage Oil and Tullow Oil to be processed domestically.

"Our objective is to process the oil. We don't want to export it…Our aim is to get an economic return, to get jobs, investment. We don't want anything raw to get out," Onek told the East African Petroleum Conference in Mombasa.

Heritage and Tullow hold interests in three licenses on the Ugandan side of the Lake Albert rift basin. Heritage is operator of Blocks 1 and 3A, holding a 50-50 stake with Tullow, while Tullow is operator of Block 2 with a 100% stake.

Tullow Chief Operating Officer Paul McDade, who confirmed that the company recently discovered more oil in the region, last week said plans call for first production of oil in early 2010.

Output will start at about 500 b/d and will be limited to 2,000 b/d or "a bit more" for the first 3 years, McDade said in a conference call Mar. 11.

McDade said production would rise to 20,000 b/d in 3-5 years and in 10 years would reach 100,000-150,000 b/d. He said the new 20,000 b/d production target is an expansion from the previous plan to pump about 4,000 b/d.

McDade said Tullow and the Ugandan government are discussing plans to build the nation's first refinery to use the early-production crude to make fuel for the domestic market.

He declined to comment on the proposed refinery's capacity or the investment required for the Ugandan project. He said that further project expansion and production boost would require a "major export scheme" after 5 years.

McDade added that Tullow planned to export crude oil through Kenya in about 5 years, and that Tullow might invite a partner to build a pipeline to carry oil from Uganda to Kenya's Port of Mombasa.

Heritage vice-president for exploration and production, Brian Smith, last week played down the idea of a full-scale refinery for Uganda. He said the estimated production is not yet high enough to justify the 100,000-b/d, $1.3 billion plant the Ugandans are reported to be considering.

Any decision to build the refinery would require sufficient proved reserves to deliver the capacity required to support a refinery, Smith said, adding, "We are not quite there yet."

In January, Uganda's former energy minister, Daudi Migereko,—hinting at the need for greater refining capacity—said his country would begin to fast-track oil exploration and production in order to resolve issues of supply and security.

"The decision, which the government has taken to fast-track oil production through the early production system, is the sustainable solution to overcoming disruption in supply," Migereko said.

"We are looking at it as a medium to long-term strategic solution to transforming our economy," Migereko said, adding that, "Uganda must stop depending on imported petroleum products. It is expensive, unreliable, and not controllable."

At the time, Uganda was suffering from a fuel shortage that Migereko blamed largely on neighboring Kenya.

Migereko said the shortage came from the rise in freight and insurance costs due to high seas piracy, congestion at Kenya's Port of Mombasa, repairs on the Kenya oil pipeline, and Kenya's introduction of a weight limit for oil tanker trucks, which decreased loads to 35,000 l. from 42,000 l.

Contact Eric Watkins at hippalus@yahoo.com.

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