Total has confirmed that it will produce Uganda’s oil despite falling crude oil prices, but the French oil company maintained its stand that the resource will be delivered to overseas markets through Tanzanian port of Tanga.
This position is likely to change the debate from the pipeline route to the sustainability of the French oil company’s joint venture in Uganda, especially with Tullow Oil Uganda. Both companies said they have better deals in Uganda than in other countries within the region.
Total Exploration and Production, Tullow Oil and China National Offshore Oil Company are equal partners in Uganda’s upstream sector, where 6.5 billion barrels of oil, 1.4 billion of which are recoverable, have so far been confirmed.
On December 22, 2015, Total’s CEO and chairman Patrick Pouyanne held a meeting with President Yoweri Museveni in Kampala and discussed the merits and demerits of each of the studied routes and the viability of oil production.
“Total has a strong commitment to work towards producing the Uganda oil resources as soon as possible, whatever the oil prices, because they are potentially low-cost resources which will be competitive in the market,” said Mr Pouyanne.
The discovery costs for Uganda’s oil resources are $0.5 per barrel — a good record, as the global average finding costs are between $5 and $25 per barrel, according to Ernest Rubondo, director at the Petroleum Exploration and Production Department.
Sustaining low costs all the way to overseas markets however remains a sticking issue. Although President Museveni and Mr Pouyanne concur that the crude oil should be transported to the coast through a low-tariff pipeline that will pass through safer areas in effect guaranteeing reliability of operations, no conclusion has been reached on route selection, at least among the oil companies.
Route selection is critical in moving the commercialisation process forward; oil production cannot begin unless infrastructure that will facilitate commercialisation has been established, but the oil companies are not at par over the Kenya government’s preferred Hoima-Lokichar-Lamu route.
Uganda has agreed to build a refinery and a crude oil pipeline as midstream infrastructure.
While Tullow has no objection to the northern route, Total says it will be expensive considering the roads and water infrastructure that need to be established even before pipeline construction begins.
Total is also concerned that the terrain in the northern route is ragged and technically challenging for construction works.
CNOOC has remained neutral, as it avoids being confrontational with any party.
“Pouyanne confirmed that Total favours to transport the crude through Tanzania,” Total’s corporate affairs manager Ahlem Friga-Noy told The EastAfrican.
“We are supportive of the process the governments are driving; I think it is fair to say we had an aligned position on going on southern route as companies, except to say that Total’s position went further than the other parties,” Tullow’s commercial manager Dean Maitland said.
In August 2015, President Museveni and Kenya’s Uhuru Kenyatta signed a memorandum of understanding for the pipeline via the northern route, on condition that Uganda gets a low-tariff pipeline. Other conditions were that Kenya guarantees security on its side of the pipeline and quick implementation of the project and mobilisation of the finances.
But the northern route means that Uganda will foot the biggest bill as the point at which Kenya oil joins the pipeline is further away compared with the southern route. Uganda would build over a longer distance for the pipeline in addition to paying higher tariffs, a scenario that deviates from the MoU.
On the other hand, sticking to the MoU means that Uganda will only meet the costs of construction to the tune of what the cheapest option offers, and that will be the basis upon which tariffs will be calculated.
Kenya will then have to top up for the remaining portion of the pipeline, or provide other incentives like tax holidays to make the northern route attractive.
In October last year, Total E&P and government officials from Tanzania and Uganda signed an MoU that paved the way for detailed feasibility study of the Tanga port option.