Is a showdown looming in Uganda? The oil and gas industry has heard much recently of developments in the country, not least the desire on the part of Ugandan officials to develop a refinery instead of an export pipeline.
Well, it seems things are coming to a head as the country considers ways of taking more control over its budding oil and gas industry with the establishment of an oil and gas policy, to say nothing of a national oil company.
According to consultant IHS Global Insight, Uganda’s Energy and Mineral Development permanent secretary Fred Kabagambe-Kaliisa last week announced the government’s intentions with an overhaul of the oil and gas policy to be implemented before the end of the year. The pending Resource Management Law and Revenue Management Law would see the establishment of a new institutional framework separating policy from regulation and commercial activities. It would also see the creation of a state-owned Uganda Oil Co.
Refinery needed
“Uganda’s government officials all talk of the country’s need to be able to refine its own crude, and it seems intent now on constructing a commercial refinery which would require a multibillion dollar investment,” said the consultant.
In fact, IHS Global Insight now strongly believes that “the Ugandan government is unshakeable in its belief that a refinery will be constructed; it is now only a question of how large the facility will be and what product slate it will have.”
Apparently the Ugandans are emboldened by the results of a 2007 study conducted by the East African Community that identified regional demand of about 150,000 b/d of petroleum products, a figure that is growing at 5%/year. While IHS Global Insight sees some merit in the idea of a Ugandan refinery, it nonetheless points out that any commercial-scale refinery would cost billions of dollars and would take many years to pay back the investment.
Key concern
As a result, it says, “this strategy would not benefit Uganda in the short term as the country’s key concern is to monetize its assets in order for the country to make progress as quickly as possible.”
Another vital issue is the actual size of Uganda’s crude reserves, an answer that will not be known until considerable further exploration has taken place over the next few years. Enter the international oil company.
“We can’t just go with a ‘big bang’ solution,” said Ian Cloke, exploration manager of Tullow Oil’s operations in Uganda. “We’ve got to understand the reservoirs and how they’ll perform,” he told a recent conference in East Africa.
Uganda clearly does have a number of key decisions to make over the coming months and years on how best to develop its crude reserves. Before making such decisions, though, the government would do well to know just what its reserves actually amount to.
What’s the old saying? The one about not counting your chickens until…?
