Uganda and Tanzania agree $3.5bn pipeline in boost to Lake Albert projects
The general outlook for the upstream sector may be gloomy, but one large project in East Africa is making progress, as David Thomas reports.
Uganda and Tanzania have signed a $3.5bn oil pipeline deal as Kampala’s long-delayed plans to develop its Lake Albert prospects come a step closer to fruition.
The deal, which will see oil transported almost 900 miles from the Lake Albert oil fields to the Tanzanian port of Tanga, was signed by Ugandan President Yoweri Museveni and Tanzanian President John Magufuli in a ceremony in midSeptember. Construction on the East African Crude Oil Pipeline is expected to take up to three years to complete.
The signing follows a deal between Uganda and French oil major Total that established a Host Government Agreement governing the export pipeline project in Uganda and the conditions of entry of the Uganda National Oil Company into the project. Total is the major shareholder in Uganda’s oil fields after agreeing in April to buy Tullow Oil’s stake in onshore fields for $575m, a deal expected to be completed in the fourth quarter. It will work alongside Chinese state-owned CNOOC to develop the fields.
Total said its agreement with Uganda, confirmed during a meeting between Yoweri Museveni and Total chief executive officer Patrick Pouyanné, will allow it to ramp up project activities and resume land acquisition in the country. Oil reserves predicted at 6bn barrels were discovered in 2006 by Tullow Oil, but development has been repeatedly delayed amid a lack of infrastructure and disagreement between partners over how to proceed with the project.
Total said it will “pursue a constructive dialogue with the communities and NGOs regarding all project activities” following criticism of the potential environmental impacts of the project.
A joint report by the International Federation for Human Rights and Oxfam said that more than 12,000 families risk losing their land and livelihoods as a result of the pipeline, but a Tanzanian government spokesman said the pipeline, 80% of which will run through the country, will create around 18,000 jobs and earn the country over $3.2bn in revenues.
“Individuals and communities whose property has been expropriated for the project want more information and fair compensation for lost land and property,” said Maria Isabel Cubides, researcher at FIDH’s globalisation and human rights desk.
Mozambique gears up for gas
Across the continent in Mozambique, there is a mixed picture for two onshore mega-projects exploiting the country’s huge offshore gas reserves, mainly for exports to the energy demand centres of Asia.
The $20bn-plus Mozambique LNG project, led by France’s Total, has successfully secured up to $16bn of financing from a plethora of lending institutions, Bloomberg reported in July. This reflects the perceived importance of the project to energy security in countries such as Japan and India. The Japan Bank for International Cooperation signed a loan agreement which could cover $3bn of the total.
The future of ExxonMobil’s Rovuma LNG project, planned for the same location, is less certain. Unlike Total, Exxon has yet to make a final investment decision on its project and said in April that, as part of swingeing cutbacks in its global operations, it would delay doing so until after the end of 2020. The company said it was in talks with its Rovuma partners over cost-saving measures.
Both projects are under threat from an insurgency by a group with connections to Islamic State, which has carried out scores of attacks, largely in Cabo Delgado province where the facilities are being developed. Total recently signed a security pact with the Mozambique government to protect the area.
Projects in the balance
Other planned projects in sub-Saharan Africa that have yet to get under way are also in jeopardy. Progress to develop onshore oil export projects in both Kenya and Uganda have been chequered, and the Covid-19 pandemic has added another layer of uncertainty for developments whose economic viability remain questionable.
In Kenya, Tullow Oil, Total and Africa Oil issued a force majeure notice in May 2020, which said the partners could not meet their contractual engagements for the development of their project to export oil to the coast via pipeline from the remote Lake Turkana region, due to restrictions resulting from the pandemic. That notice was withdrawn in August as conditions improved, but the project still faces a host of problems, including securing key water and land access and the need to finance and build export infrastructure – not least the 80,000-120,0000 b/d pipeline to Lamu port. Additionally, Tullow and Total have thus far failed to sell part of their stakes in the project, as they seek to spread the financial risk.
Elsewhere there has been progress. Uganda and Tanzania have signed a $3.5bn oil pipeline deal that advances Kampala’s long-delayed plans to develop its Lake Albert oil industry (see box, left).
Total is also making progress in South Africa, where it is drilling near its gas discovery off the country’s southern coast in search of more reserves. Early estimates suggest Brulpadda could hold around 500m-600m barrels of oil equivalent. That would be more than enough for a commercial development and South Africa could provide a ready domestic market.
Ultimately, many African upstream producers remain dependent on a speedy resolution of the Covid-19 crisis in order to protect vulnerable projects and boost oil demand in the global economy, allowing them to forge ahead with progress at major fields. ■
A Tanzanian government spokesman said the pipeline will create around 18,000 jobs and earn the country over $3.2bn in revenues