Uganda Refinery Project Opts to Go Smaller, Adds Export Pipeline

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--After a drawn-out game of chicken with Total S.A. (NYSE:TOT) (Paris, France) and CNOOC (NYSE:CEO) (Hong Kong, China), the East African country of Uganda has agreed to the construction of a 30,000-barrel-per-day (BBL/d) oil refinery, instead of the 200,000-BBL/d plant it wanted.

Rather than build a major refinery in Uganda, Total and CNOOC have always favored a pipeline project to export crude oil via Kenya's Indian Ocean coastline, on the grounds that there was insufficient local demand to justify building a refinery of the scale wanted by Uganda.

Uganda has aid that it wants a 40% stake in the project, and President Yoweri Museveni wants to finalize the deal quickly through a memorandum of understanding that would include the construction of an export pipeline to Kenya. "We have wasted too much time," the president told oil companies and government officials. "We have had this issue with oil for seven years. We need to make our final decisions."

Uganda has estimated oil reserves of 3.5 billion barrels and, in early 2012, Total and CNOOC moved into Uganda's petroleum sector as each took a 33% investment in Tallow Oil's (OTC:TUWLF) (London, England) exploration assets, for a total of $2.9 billion. The total investment in the refinery and pipeline is estimated at $12 billion.

Discussions on the details of the deal are ongoing and include the stake held by the three companies and the government. The level of oil production is another issue. The government wants a gradual production increase to avoid the rapid depletion of the reserves, but the companies are pushing for faster growth of up to 200,000 to 230,000 BBL/d by 2020.

Three potential export pipeline routes are under consideration. East Africa is coming alive with energy and resource projects from Ethiopia in the north to Mozambique in the south. With its major oil reserves, Uganda is looking to join Nigeria, Angola and Sudan as a major oil producer and exporter. The parties are hoping for finalization of the project by the end of this year.

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