Tanzania, Uganda $4 Billion Oil-Pipeline Timetable Slips
June 20 2016 - 11:40AM
Dow Jones News
LONDON—The Ugandan and Tanzanian governments are trying to
fast-track a $4 billion oil pipeline that would connect landlocked
Uganda to foreign markets even though construction won't start in
August as they originally indicated.
The companies behind what could be East Africa's first major oil
pipeline believe the August start-date that Tanzanian officials
gave last March for work on the 900-mile pipeline through Tanzania
is unrealistic.
But the governments have made more progress in preparing the way
for construction to start on the project that would transport
Ugandan crude to the Tanzanian port of Tanga on the Indian Ocean,
industry officials said.
Tanzanian and Ugandan government officials weren't immediately
reachable for comment.
French oil giant Total SA, the UK-based Tullow Oil and Chinese
state-owned oil company Cnooc Ltd. are the three firms developing
Uganda's oil fields and all three companies are expected to invest
in the Ugandan pipeline which will have an estimated capacity of
200,000 barrels a day.
For now, there is no definitive start date for construction in
the absence of an official development plan, Total and Tullow
officials said. Cnooc couldn't be reached for comment.
With no official development plan in place, it is certain that
the construction phase is still several months away.
The overall aim is to keep Uganda on track with the goal of
exporting its first crude reserves by 2020. Analysts and developers
now say a 36-month timeline is the best- case scenario with work
starting as soon as possible. If this was to go ahead as planned
construction would be completed in mid-2019 allowing several months
for testing and commissioning before the infrastructure became
fully operational.
"Bear in mind in this industry, the project development is
always long," Damien Steffan, a Total spokesperson, said in an
email. "On average, it takes 10 to 15 years between the moment when
you make a discovery and the moment of first-oil."
Uganda now ranks as the fourth-largest reserve for crude oil in
sub-Saharan Africa with the discovery of 6.5 billion barrels of oil
since 2006, of which 1.2 and 1.7 billion are recoverable, according
to the International Monetary Fund.
Uganda's break-even price per barrel is estimated to be $60,
according to Paul Bagabo, a Uganda-based consultant for the
nonprofit organization Natural Resource Governance Institute. That
is below current global crude prices, around $50 a barrel.
Mr. Bagabo said the relatively high cost of production in Uganda
raises concerns that investors may be tempted to back out of
infrastructure development if global prices fail to recover
further.
To protect itself from any external oil price shocks, create
jobs and provide domestic consumers with products such as gasoline
and diesel, Uganda also plans to build a 60,000 b/barrels a day oil
refinery in tandem with the pipeline.
"With the refinery we can opt to export while [the pipeline]
completes," Mr. Bagabo said. "The refinery is critical for Uganda's
specific interest and the interests of economic development."
The Ugandan government is in the final stages of acquiring land
for the refinery which will be constructed and operated by the
Russian state-owned firm, RT Global Resources, in the country's
west near the town of Kabale, he said.
The Ugandan government officially announced its pipeline
partnership with Tanzania in late April. This backtracked on a
previous understanding with the Kenyan government that Uganda would
jointly develop a pipeline that would run through Kenya.
The Tanzanian route, which a commissioned study said was cheaper
and safer from attacks from militant groups like al-Shabaab, was
also billed as a way to hasten the project.
Total and Tullow were initially at odds over the selected route.
Tullow, which also has interests in Kenya's oil fields, supported a
Kenyan pathway for the pipeline. In contrast, Total, the biggest
stakeholder in Uganda's oil fields, is said to have lobbied hard
for an alternative.
Write to Katie Riordan at Katie.Riordan@wsj.com
(END) Dow Jones Newswires
June 20, 2016 11:25 ET (15:25 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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