Petroleum Resources in Uganda

Introduction

Uganda's petroleum sub-sector covers both upstream and downstream industries. The upstream industry deals with exploration, development and eventual production of petroleum while the downstream covers transportation (of both crude and refined products), refining, storage, distribution and marketing of petroleum products.

Imports

Uganda imports all its petroleum products requirements from overseas since there is yet no local production. About 90% of Uganda’s petroleum imports are routed through Kenya with only 10% coming through Tanzania. The costs of transportation of the products from the seaports (Mombassa and Dar es Salaam) are high. Because of this problem, Government is planning to extend the oil pipeline from Eldoret in Kenya to Kampala a distance of 340 km. The possibility of building a 10-12 inch diameter 1,450 km pipeline through Tanzania to Uganda is also being examined.

As of 2007, consumption of petroleum in Uganda stood at 800,000 m³ per annum growing at about 6% per annum since 1997. The petroleum import bill stands at US$ 250 million per year. This constitutes about 8% of total national imports and represents slightly above 20% of total export earnings.

Smuggeling

One of the most significant problems in the industry is smuggling of petroleum products into the country from the neighboring countries. In an effort to curb smuggling and adulteration of products, Government introduced compulsory bio-code marking of all officially imported petroleum products in 2000.

Consumption

Consumption of petroleum in Uganda currently stands at 550,000 m³ per annum and is low compared to those of her neighbors Kenya and Tanzania. Consumption of petroleum grew at an average of 14% per annum between 1993 and 1996, then slowed down to about 6% per annum since 1997.

Prices

Petroleum product prices in Uganda were deregulated in 1994. From 1997 the sector was opened up for new marketing companies to join. Deregulation has stimulated investment in the industry. There are 40 licensed oil-marketing companies in Uganda of which 25 are in operation. The country has no national oil company but maintains fuel reserves at Jinja in Eastern Uganda for strategic purposes also offering temporary storage accommodation at its Jinja Storage Tanks as an incentive to the newly licensed oil companies to encourage competition.

The petroleum import bill is now of the order of US$ 160 million per year. This constitutes about 8% of total national imports and represents slightly above 20% of total export earnings. Petroleum product prices in Uganda were deregulated in 1994. Pump prices are high. Since liberalization was introduced, pump prices have risen in nominal terms by nearly 67% (though decreased in real terms by between 8.6% and 13.7%).  Deregulation has stimulated investment in the industry.

Companies

After liberalization Government divested its 50% interest in three oil companies. From 1997 Government also opened up the sector for new marketing companies to join. The Petroleum (Exploration and Production) Act of 1985 and the Petroleum (Exploration and Production) (Conduct of Exploration Operations) Regulations of 1993 regulate upstream activities. The downstream industry is governed by the Petroleum Act of 1964 and several Regulations made there under. A review of the legal framework has been undertaken and proposals for a new Petroleum Supply Law and Regulations have been prepared. Under the proposed law, a new licensing and regulatory regime and an advisory committee of experts will be set up and national safety and environmental standards will be prepared. This will be harmonized with similar standards within the East African Community Member States. 

Fossil Fuels Potential and Distribution

Uganda recently discovered petroleum in the Abertine Graben located in the western rift valley. The area stretches from the border with Sudan in the north to Lake Edward in the south, a distance of over 500 km. Although the graben varies in width, it’s commonly 45 km wide and extends to the Democratic Republic of Congo in some parts.
The area is divided into 6 exploration blocks of which 4 have been licensed. The companies that have been licensed to drill and prospect for oil are: Tower resources, Heritage Oil and Gas Ltd, Hardman Resources and Tullow Oil.
Though the existence of oil in western Uganda was confirmed in 1938 at WAK-1, effective interest in oil exploration did not materialize until 1997 when Heritage Oil and Gas Ltd was attracted to do seismic surveys western Uganda. Oil exploration started about 5 years ago and 6 well have so far been drilled in 2 of the 4 licensed areas. Oil has been discovered in all the wells drilled except one which contained carbon dioxide.
The Kingfisher well in Block 3A was drilled to a total depth of 3,195m. Tests resulted in an overall cumulative maximum flow rate of 13,893 bopd through a one inch choke. Waraga-1 well flowed at a cumulative rate of approximately 12,000 bopd of good quality crude and the Mputa-1 well tested 1,120 bopd.
Although the estimated oil reserves have not been determined, the rate of oil discovery and results of flow rate tests show that the Albertine Basin looks increasingly like a world-class petroleum basin. As a result of the oil prospects, the government is expediting the development of the Oil and Gas Policy to guide the country in the exploitation of the petroleum resources. The government is planning an early oil production scheme that will involve setting up a mini refinery to process crude oil to produce diesel, kerosene and heavy fuel oil.

Challenges / Issues affecting Exploitation of Fossil Fuels in Uganda

The Albertine graben in western Uganda where petroleum exploration is taking place neighbour eastern part of the Democratic Republic of Congo where there has been persistent armed rebellion and civil strife. If the conflict spills over to Uganda it will adversely affect petroleum exploration activities in the country.

Issues Affecting Resource Exploitation

Upstream Industry

• Limited public resources available for investment resulting in ineffective promotional campaigns;                    

     - Inability to acquire seismic data in the exploration areas which are not yet licensed to oil companies.

• Low investment in the upstream sub-sector by oil companies.

Downstream Industry    

• Inadequate institutional and legal framework to regulate the petroleum supply industry, resulting in lack of competition and transparency.
• Significant smuggling of petroleum products along the borders.
• Low storage private capacity compared to national requirements.
• Lack of quality control of the oil products, posing an increasing hazard to public health and the environment.
• High transport costs and high margins by oil companies.

References and Links to Further Reading

• GTZ (2007): Eastern Africa Resource Base: GTZ Online Regional Energy Resource Base: Regional and Country Specific Energy Resource Database: II - Energy Resource.
• Ministry of Energy and Mineral Development
• Tullow Oil Plc