Could East Africa Become The Next Major Oil Hotspot?
The last 18 months have seen very few large-scale oil projects moving from a prospect status into an entire regions next best thing. The Lake Albert project in Uganda is a rare exception for a year that has seen more oil-doomsaying than new FIDs, however judging by the steady stream of news coming in from the project operator, the French TotalEnergies (formerly known as Total), it is indeed happening. Ugandas first crude project intended and designed to be marketed globally, in fact, its first hydrocarbon project ever, Lake Albert will produce some 230kbpd once it reaches peak production. Whilst Western economies are arguing whether oil companies should cease all future exploration activity along the IEAs Net Zero by 2050 scenario, East Africa is shaping up to become one of the hottest exploration frontiers around the world, provided regional states manage their heretofore biggest challenge  guaranteeing the security of oilmen. Despite abutting several current prospective oil-producing countries like South Sudan or Kenya, Uganda is still yet to produce its first-ever barrel of oil. That being said, its recoverable reserves already stand at 1.5 Bbbls and could easily see an upward increase considering that its oil-in-place is almost fivefold higher, at 6.5 Bbbls. Uganda has seen no exploration drilling since 2014, so hypothetically there might be many more discoveries coming should companies get back to spudding wells again. All the fields that form part of Lake Albert were discovered in the 2006-2010 (the subsequent 4 years saw a lot of appraisal drilling to delineate the fields), initially, the size and scope of the oil finds were relatively small. The first discovery in 2006, Mputa-1 hit a 10m net oil pay, to be followed by the subsequent Waraga-1 (27m net oil pay) and Kingfisher-1 (40m net oil pay) finds that gradually heightened the interest towards the play. The 2009 discovery of the Jobi-Rii group of fields, assessed to hold 0.5 Bbbls of recoverable reserves, was hailed as the largest oil discovery in Sub-Saharan Africa at the time. Uganda might have seen even more discoveries over the 2010s, however, protracted disputes on upstream terms and conditions have hindered further drilling. Yet even with this, the stakeholders had enough to kickstart a hugely important project. In 2020, the erstwhile pioneer in the region, the London-based Tullow Oil sold its entire interests to the French major Total, meaning that the Lake Albert project is to be managed by the Total-CNOOC tandem. The crude produced would be shipped along the 215 kbpd East African Crude Oil Pipeline (EACOP) from Hoima to the Tanzanian port of Tanga on the Indian Ocean coast, totaling 1445km. Related: U.S. Warns Gulf Allies: Don't Normalize Relations With Assad  The projects timeline presumes that construction of the pipeline would start this year, however, the $3.5 billion megaproject presents its own challenges. Several environmentalist groups have warned that EACOP would jeopardize vulnerable ecosystems, including the Murchison Falls National Park, pressurizing banks not to finance it. The project company intended to finance at least 70% of the pipeline (some 2.5 billion) by means of banking loans, however so far only the African Development Bank committed to doing so. The IMF might find itself in an inadvertent position of financing EACOP as Uganda prepares to use part of its $900 million to help finance the pipelines construction. Interestingly, it is not the projects production costs that keep bankers afar as the assumed $11 per barrel construction cost bodes really well for future projects in the region. The quality of the crude deserves a separate note. Its density at roughly 30-32 API and minimal sulfur content would make it ideally suited for the market conditions of today, however as often is the case with African grades there are caveats to it. The biggest problem will be the crudes pour point, which stands at 40 C, i.e. the barrels would be un-transportable without additional heating all along the way (hiking the pipeline costs beyond the usual as the EACOP is to become the worlds longest heated pipeline). The second issue lies in its waxiness, implying that refining Ugandan crude would most probably require sophisticated refining setups, which, on the other hand, might not be necessarily a problem for Chinese or Indian refiners. The 190kbpd Tilenga contract was concluded several weeks ago as Total awarded the EPC deal to a Sino-American consortium that combines Chinas Sinopec and the US firm McDermott. Once the contract is cleared by the project partners, i.e. CNOOC (28.33%) and the Ugandan state oil company UNOC (15%), it would officially enter into force. The other part of the Lake Albert project, the 40kbpd Kingfisher field, should see its EPC contracts soon. In taking the ambitious step of launching Lake Albert in earnest only several weeks after Totals Mozambique LNG was called off on the back of insurgent attacks, the project companies are also signalling that they consider the security situation to be adequate in Uganda. Security will be the main challenge for Lake Albert, despite the deployment of some 2000 Ugandan troops in Congolese territory to help fight the ongoing insurgency in the provinces of North Kivu and Ituri. Prime among the threats is an ISIS-linked militant group called Allied Democratic Forces (ADF), consisting largely of Uganda-born fighters hellbent on ousting President Museveni. The ADF is responsible for numerous attacks in the eastern provinces of the Democratic Republic of Congo, bordering with Uganda. In terms of what exactly could the insurgents attack, it needs to be noted that the southern fields of Lake Albert, i.e. Kingfisher and the others abutting it, are only separated from the DRC by an imaginary line across the field. With prices bouncing back to positive territory and despite COVID raging across the planet, the Ugandan government has committed to holding its 2nd licensing round. Kampala offered five blocks, all of them in the Albertine Graben. Although the results are still some way from being confirmed, it seems highly likely that the Total Energies  CNOOC tandem will be taking up more acreage in Uganda. By Gerald Jansen for Oilprice.com  More Top Reads From Oilprice.com: