The project to construct the world’s longest heated oil pipeline to transport landlocked Uganda’s maiden crude production to the Indian Ocean for export took major steps forward in late May.
An intergovernmental agreement (IGA) between Kampala and Dodoma was followed days later by the launch of the selection process for a contractor to oversee implementation of the multi billion dollar scheme.
Against the wider backdrop of Uganda’s prolonged weighing of options for monetisation of the country’s first oil, the scheme has moved relatively swiftly over the past year. Discussions had centred initially on domestic refining and crude exports and then over the latter’s route to market.
The progress follows President Yoweri Museveni’s belated agreement to a route from the Albertine fields in western Uganda via Tanzania’s port of Tanga in preference to Lamu in northern Kenya.
France’s Total – Uganda’s pre-eminent upstream operator, which lobbied hard for the fickle head of state’s last-minute change of heart – is taking the lead in the tendering process and is expected to play a key role in arranging the financing.
Expressions of interest (EoIs) were invited by Total East Africa Midstream on 31 May for the engineering, procurement and construction management (EPCM) contract on the so-called East Africa crude oil pipeline (EACOP), with responses due by 12 June and prequalification documents to be dispatched thereafter.
The scheme covers a 1443 km, 24 in. (610 mm) buried pipeline from Hoima near the Lake Albert fields to Tanga, 200 km north of Dar es Salaam, heated to more than 50°C to enable the handling of Uganda’s waxy crude and with capacity of 216 000 bpd.
US’ Gulf Interstate Engineering began work on front end engineering and design (FEED) studies in January and the work is anticipated to be completed by the end of August.
The project will also entail the construction of up to six pumping and heater stations and two pressure reduction stations along the route, feeder pipelines from upstream central processing facilities in Buliisa and from the Kingfisher field to the first pumping station at Kabaale, and storage and export facilities at Chongoleani near Tanga. This includes five, 500 000 bbl heated storage tanks, a marine terminal pump station capable of loading a 1 million bbl tanker within 28 days, and a 1.7 km offshore trestle to a single berth load-out platform trestle.
Initiation of the contracting process for the construction phase was prompted by signature of the IGA. This followed an agreement reached during bilateral talks between Museveni and his Tanzanian counterpart John Magufuli the previous week on some key financial terms including, according to a communiqué issued on 21 May, a waiver of value-added tax during the three year construction period.
There was no mention of the transit fee, which is widely reported to have been provisionally set by Dodoma at US$12.2/bbl in order to undercut the Kenyan proposals. A concept brief issued by the two governments in January stated that signature of the IGA would be followed by ‘Host Government Agreements’ defining the precise rights and responsibilities of the various parties.
Project costs are estimated at US$3.5 billion, with 60 - 70% anticipated being debt-financed and all three of Uganda’s upstream developers – Total, the UK’s Tullow Oil and China National Offshore Oil Corp. (CNOOC) – expected to take a stake in the EACOP project company that will be created to own and operate the facilities.
The French firm is predicted to take the lead in arranging the finance – having been the instrumental proponent of the Tanzanian option on security and cost grounds. It recently signalled its intent to assume the largest upstream role in January by acquiring part of Tullow’s stake in the US$5.2 billion Lake Albert development project – which is designed to deliver plateau production of 260 000 bpd.
Completion of the pipeline is due in 2020 to coincide with the latest target date for first crude production – although slippage of both timetables is widely anticipated in light of the persistent upstream and downstream development delays since the discovery of oil in 2006.
30 000 bpd is envisaged feeding a greenfield refinery at Hoima. Implementation of the estimated US$4 billion downstream project remains in limbo following withdrawal of the putative foreign partner, Russia’s RT Resources, in the summer of last year.
Energy Minister, Irene Muloni, claimed in early May that two companies had been called for negotiations out of eight to have responded to a renewed call for EoIs, with a selection promised by the end of the year.
The three upstream companies are again expected to take equity stakes alongside Kampala and the selected strategic partner in the public/private partnership to be created to implement the scheme.
This NewsBase commentary is from its DMEA publication. You can read read more NewsBase top stories here.
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