Uganda is proceeding with its plans to build a refinery in Kabale-Buseruka, in the Hoima District. However, we underline how new discoveries made by Tullow in Kenya could somewhat upset Kampala's aspirations. Further down the line, other projects in the region could also provide substantial competition. Although BMI believes Uganda is well placed to obtain a small-scale 20,000 b/d refinery in the near future, we will have to wait longer for the dust to settle and establish which country is best placed to become East Africa's undisputed downstream leader.
Petroleum Officer-Refining at Uganda's Ministry of Energy and Mineral Development, Irene Batebe, said that the country's plans to build a 20,000 barrels-a-day (b/d) in Kabale-Buseruka, Hoima District, would be developed under a Public Private Partnership (PPP) and that 29sq km had been earmarked for its construction.
Recent oil finds in Kenya are widely believed to threaten the project as Nairobi could leverage these discoveries to reassert its downstream prominence. The 80,000b/d Mombasa refinery in Kenya is currently the only such plant in operation in the whole East African region. Nonetheless, Kampala remains undeterred in its downstream ambitions. Assistant Commissioner Geophysics in the Petroleum Exploration and Production Department at the Ugandan Ministry of Energy and Mineral Development, Honey Malinga, said: 'It doesn't matter whether we have two or more refineries in the region provided they are here to help us'.
Uganda Challenges Kenya's Monopoly
First commercial oil discoveries in Uganda, made by British independent Tullow in 2006, were found in the Albertine basin along the border with the Democratic Republic of Congo (DRC). Tullow says that reserves of 1.1bn barrels (bbl) are confirmed with another 1.4bn bbl still to be discovered. The government claims that 2.5bn bbl have already been confirmed, of which 1.0-1.2bn bbl are recoverable, and that the basin could hold as much as 6bn bbl because 40% of its acreage remains unexplored. According to the UK independent, small-scale production, to be sold on the local market, could start as early as 2013, with larger commercial production to begin in 2014 and then increase to reach up to 350,000b/d by 2018.
The prospects of large crude production have raised the downstream ambitions of the Ugandan government. The Hoima project was seen as an opportunity to build on a blossoming upstream industry to strengthen the nation's refining independence. The US$600mn facility would be commissioned by 2016 and would mostly be dedicated to the domestic market. Nonetheless, Kampala's aspirations are not restricted to Uganda's territory.
Plans for several consecutive upgrades have been made, the most advance of which would include a US$2bn investment to expand capacity to 60,000b/d. Further down the line, future expansions that would see capacity reaching 120,000b/d and even 200,000-250,000b/d have also been mentioned.
Kampala has been so keen to develop this project that it has tied it to the development of upstream projects in the country. The finalisation of the farm-out deal between Tullow, French supermajor Total and the China National Offshore Oil Corporation (CNC) is expected to unlock US$10bn in investment, part of which the government is hoping will be used for the construction of the Hoima refinery.
Nonetheless, although these companies have agreed in principle to the project, there are still disagreements over its size. Eoim Mekie, Tullow's Uganda country manager, said that a facility with a capacity exceeding 60,000b/d would not be viable as it would struggle to find enough regional demand (see BMI's Upstream Rush Gathers Pace After False Start, May 10 2012). India's Essar Oil, which owns a 50% stake in the Mombasa refinery, has also approached the Ugandan government to form a joint venture (JV) to help build the Hoima plant.
Ready, Steady, Go!
Country Name Location Capacity (b/d) Owner Cost (US$/bbl) Completion Date
Kenya Lamu Lamu Island 120,000 na 20,833 na
Mauritius Mauritius Mauritius 200,000 Mangalore Refinery and Petrochemicals Limited 10,000 2015
Mozambique Maputo Maputo 350,000 OilMoz 22,857 2013
Mozambique Nacala-a-Velha Ampula Province 300,000 Ayr Logistics 16,667 2015
South Sudan Gemeza Central Equatoria State 100,000 na na na
South Sudan Akon Warap State 50,000 na 36,000 na
Tanzania Kisiju Dar es Salaam 200,000 Noor Oil and Ind ustrial Technology Consortium 30,000 2013
Uganda Kabale-Buseruka Hoima District 200,000 Essar approached the government to form a JV 23,000 2016
Source: BMI Global Refining Database
Waiting For The Dust To Settle
Investor support for Uganda's downstream ambitions were encouraged by the country's growing upstream regional prominence. Indeed, investing in the Hoima project was not only seen as a concession made to get Kampala's sympathy and thus obtain a larger share of the upstream pie; but also as a relatively risk-free commitment to the extent that future production would provide secure feedstock and growing regional demand would offer a predictable route to market. Nonetheless, with Tullow's recent Ngamia-1 discovery, the regional balance of power has somewhat tipped back in Kenya's favour (see BMI's Upstream Success To Buttress Industrial Prominence, May 28 2012).
Indeed, the Mombasa refinery already has the necessary infrastructure to supply the regional market and it is placed close to a harbour with access to international feedstock suppliers and fuels consumers. Thus, the plant is much more flexible and adaptable to shifts in demand patterns than the landlocked Hoima project.
Furthermore, plans are under way for a US$1bn modernisation of the plant which would bring the current utilisation of 40% closer to 100% and would increase the refinery's white-product yield (see BMI's Major Refinery Upgrade Offers Hope For Flailing Downstream Sector, August 31 2011). Momabasa could also benefit from currently unused South Sudanese feedstock.
The region's total demand for oil is estimated at 164,000b/d, which would suggest that the Hoima project and the upgrade of the Mombasa refinery could both be implemented. Nonetheless, several other downstream facilities have been proposed in the region including in Mozambique and Tanzania.
However, the threat posed by these two countries is limited given that they do not have large domestic oil resources of their own to compete. More worrying for Uganda are the prospects of another plant in Kenya, on the island of Lamu where a large port is being built, or of wide-scale refineries in South Sudan, or even in Mauritius which has vast and untapped heavy oil resources.
Therefore, while Uganda seems well placed to obtain a small-scale 20,000b/d refinery in the near future, we will have to wait longer for the dust to settle and clarify which country offers the best combination of oil resources, political stability and infrastructure to become East Africa's undisputed downstream leader.