Energy & Mining

Corridor to the Indian Ocean

Uganda Pipeline

Tanzania and Uganda have agreed to build a pipeline capable of carrying 200,000bpd to ship oil from the Ugandan fields in the Albertine rift basin to the Indian Ocean to have access to international markets.

In April 2016, during the East African Community (EAC) meeting, Tanzania and Uganda announced the construction of a pipeline to transport oil from Kabaale, in the south of Uganda, to Tanga a seaport city on the Indian Ocean about 200km north of Dar es Salaam.

Tanzania’s Ministry of Energy and Minerals explained in a communique that a 24-inch pipeline will stretch for 1,443km and will cost of about USD4 billion to construct. The infrastructure was originally supposed to pass through Kenya and reach the port of Lamu, in the north of Kenya, but the government of Uganda explained that the Tanzanian route will be more cost effective, despite being longer, due to the fact that the land is flatter and easier to clear since the government owns it.

The Kabaale-Tanga route was also the investors preferred choice. Some investors had already raised concerns over security, as Lamu is located nearby the Somali border and an oil pipeline could represent a tempting target for al-Shabaab militants.

For Tanzania, this represents a major win since the majority of the infrastructure (more than 1,100km) will lay on Tanzanian territory. Further to that, the project also offers a significant employment opportunity, and is expected to create 21,500 direct and indirect jobs.

The East African Crude Oil Pipeline (EACOP), as the project has been christened, is set to have the capacity of transporting 200,000bpd, and Tanzania will benefit through taxes and tariffs from the companies that will be using the pipeline. According to the IMF, Uganda holds the fourth-largest reserve for crude oil in sub-Saharan Africa, with a total oil reserve of 6.5 billion barrels, of which approximately 1.7 billion is recoverable.
The first oil discovery in Uganda dates back to 2006 when government geologists found crude oil reserves in the Lake Albert Basin near the border with the Democratic Republic of Congo. However, delays in agreeing on the design and financing of the pipeline and the refinery caused production to be pushed back for an entire decade.
Uganda is keen to produce its first crude by 2018 and be able to export it by 2020. Although construction was originally projected to start in August 2016, building work is now scheduled to commence in June 2017. Analysts and developers expect the project to take up to 36 months to complete, and say that a couple of months will be added to that for testing and commissioning before the infrastructure can become fully operational.

The companies behind what could be East Africa’s first major oil pipeline are London-listed Tullow Oil, France’s Total, and China National Offshore Oil Corporation (CNOOC), which are already operating in Uganda and have all agreed to participate in the construction of the project.

Uganda’s oil is thick and needs to be heated to a temperature of 50 degrees Celsius; therefore, heating stations are required at points along the pipeline. Also, tarmacked roads and a railway line will run along the pipeline to make it easier to mobilize materials during the construction phase and for maintenance operations once the construction is completed.

At the other end of the pipeline is Tanga port. Facilities there are already operational, but the government is planning to enhance the infrastructure and turn it into an oil trading hub. For operators, this would help reduce freight charges for oil transportation, lower prices for oil products, and generally make the port attractive to new players from the East and Central African regions.

Beyond the function and benefits the pipeline will bring, it also represents a clear indicator of the growing role that Tanzania can play in the region. Tanzania is the natural point of connection to foreign markets, bordering eight countries, of which six are landlocked economies. The long list of infrastructure and logistic projects that President John Magufuli has in mind is a clear indicator of the government’s intention to capitalize on this geographical positioning.

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