Uganda's $5 Billion Refinery Set Against $5 Billion Regional Pipeline Hub

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--The latest chapter in the story of the proposed oil refinery in the central-eastern African country of Uganda is that the government wishes to develop the project as a public-private partnership and retain a 40% stake in the operating plant.

The project could have a capacity of 20,000 barrels per day (BBL/d) in the first phase and then expand to 120,000 BBL/d in 2017. Crude feed for the project would come from the oil fields currently being developed in the Lake Albertine rift basin, where the refinery will be sited. Tullow Oilplc (TLW:LSE) (London, England) has been involved for some time in oilfield exploration and development, and in developing options for the refinery build.

Peter Lokeris, Uganda's junior energy and minerals minister, said that negotiations with prospective investors in the $5 billion project were taking place and that requests for a bid to be submitted could be made as early as this month. Bid evaluation will be fast-tracked to ensure that the contract is issued to allow the commencement of construction early in 2013, he said.

The initial phase will supply refined products to the domestic market followed by exports to the regional East African market. Industry observers have said that a 120,000-BBL/d refinery may be too large for Uganda demand for products. Potential Ugandan crude oil production could be 200,000 BBL/d by 2016-17.

Companies that have expressed interest include Total S.A. (NYSE:TOT), CNOOC Limited (NYSE:CEO) and China National Petroleum Corporation. Tullow, Total and CNOOC are currently investing $10 billion in the development of the Lake Albertine oil fields.

Tullow maintains that a refinery with a capacity of more than 60,000 BBL/d would not be viable and is supporting the construction of a 1,300-kilometer pipeline to export crude oil through the Kenyan port of Mombasa.

But the Ugandan government is talking to members of the East African Community and offering to cede 10% in the project to bring them aboard. The government also has issued tenders for of more than 1,180 kilometers of roads to be built through 2016 to support the primary growth of the agriculture, tourism and oil sectors. The tender document indicates that the government plans to procure contractors with the capability to organize funding for the road projects to link resource-rich but remote regions.

In the meantime, Tullow's COO, Paul McDade, has said that the company will not invest in a 20,000-BBL/d, government-backed refinery. "We've always said we don't want to be involved in the midstream and the downstream."

Tullow, Total and CNOOC are studying oil export pipeline routes with investments of between $2.5 billion and $5 billion, depending on the route, design and throughput. This project could include a regional hub to transport crude from Uganda to Kenya for seaborne exports. Tullow's recent promising oil discoveries in Kenya could positively influence the decisions on this regional plan.

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