The African Development Bank has issued a cautionary message to Uganda, emphasizing the importance of expediting its oil and gas production. Edward Sennoga, the Second Lead Economist for the AfDB’s East African office, expressed concern about the limited time available for Uganda to benefit from its newfound oil reserves.
Speaking at the launch of the African Development Bank’s Uganda Country Focus Report 2023 in Kampala, Sennoga emphasized the need for Uganda to tap into its fossil fuel resources to ensure short-term energy security.
The warning from Sennoga and other experts is rooted in concerns over the global shift toward low-carbon economies, also known as the energy transition, which could impact global oil demand. Some experts suggest that Uganda should commence oil production before 2030 or 2040, coinciding with the expected rise of electric vehicles and increasing pressure on the oil and gas sector.
The International Energy Agency’s net zero roadmap for 2050 underscores the necessity of significant reductions in hydrocarbon usage by 2040. This includes phasing out unabated coal and oil power plants to achieve net zero emissions by 2050.
Currently, Uganda is investing in infrastructure projects, including the Tilenga projects by TotalEnergies and the King Fisher project owned by CNOOC, with a total value of $10 billion. Additionally, plans for the construction of a crude oil refinery (valued at approximately $4 billion) and the East African Crude Oil Pipeline (EACOP, valued at $3.5 billion) are in progress.
Sennoga has highlighted the risk of potential stranded assets if Uganda does not advance its oil and gas activities towards production.
To seize this opportunity, Sennoga advises Uganda to focus on its oil and gas resources while simultaneously investing in productivity in other sectors to foster economic growth.
Delays in Uganda’s oil production journey have persisted for nearly 18 years since the discovery of commercial recoverable oil in the Albertine region. The projected production timeline has shifted from 2020 to the second or third quarter of 2025.
One significant cause of delay was the protracted negotiations between the government and oil and gas companies, which stalled the Final Investment Decision (FID). Disagreements over crude oil pipeline tariffs during the host government agreement (HGA) negotiations between Uganda, Total E&P, Tullow Oil Uganda, China National Offshore Oil Company, and the Tanzanian government contributed to the delay.
The FID was eventually reached in February 2022, paving the way for major construction activities at the Tilenga and King Fisher projects in Bulisa, Nwoya, and Kikuube districts. Drilling operations are ongoing at these locations.
However, further setbacks occurred when an agreement with the American-led consortium set to build and operate the 60,000 barrel crude oil refinery expired at the end of June. The government has yet to find a replacement for the Albertine Graben Energy Consortium (AGEC).
In the midst of these prolonged delays, the global oil industry landscape is evolving rapidly, raising questions about the economic viability of oil and gas projects in Uganda.
