Will low oil prices ultimately prevent the construction of the Tanzania-Uganda pipeline?

Will low oil prices ultimately prevent the construction of the Tanzania-Uganda pipeline?

4 billion USD Tanzania-Uganda oil pipeline to be launched in undefined future. Who will benefit the launch of the pipeline? And why Tanzania is excluded from pipeline talks?

Mobile Insurance cover continues to grow in popularity.
56 oil companies have to adapt to lower prices
Nigeria’s crude oil production rises

Background

On the 2nd March 2016 the President of Tanzania, John Magufuli announced that he had successfully secured a deal which was widely believed about to be awarded to Kenya, to construct a 1,410 km crude oil pipeline.

Following the announcement, Kenyan officials were quoted as saying that they believed that the plans were yet to be finalized and that it had meetings scheduled in Kampala to discuss the project.

Kenya and Tanzania are regularly in competition, with both regularly vying to become the biggest economy in East Africa. It has been predicted by some economists that if current trends continue in both countries, by 2020 Tanzania’s economy will be 20% larger than Kenya’s economy.

On the 25th April 2016, it was confirmed that the pipeline would indeed run through Tanzania and that work would begin in August 2017 and be due for completion in 2020. Being awarded the pipeline will go a long way in confirming Tanzania as the new economic giant in the region.

The construction of the pipeline is expected to cost over $4 billion and will connect the Tanzanian Indian Ocean Port of Tanga with the Ugandan oil fields in Albertine.

Who benefits?

Professor Sospeter Muhongo, a Tanzanian geologist has recently been quoted as saying that the construction of the Tanzania-Uganda pipeline will not just benefit Uganda and Tanzania, other surrounding countries such as Rwanda, Burundi, South Sudan, Kenya and the Democratic Republic of Congo will also benefit. “It will be cheaper and easier for these countries to use the pipeline compared to any other port in the East Africa Region, the Tanzanian route is cost-effective, reliable and secure,” he said.

Oil Companies

Tullow Oil, the leading Independent oil company in Africa had previously supported Kenya’s bid, saying that whilst the route through Kenya would cost slightly more to build, approximately $1 billion more, it felt that it offered “obvious economies of scale” for a number of reasons including the fact that it would end in the Port of Lamu, opening up possibilities of future business arrangements with the recently independent oil rich country of South Sudan.

Recent developments in South Sudan which many fear may result in a return to the violence that has plagued the country, as well as recent security problems on the Somalian and Kenyan border are both thought to have damaged the viability of Kenya’s bid.

Total, Tullow Oil’s main financier and partner in the oil fields of Uganda have always favored the Tanzanian route believing that it will be cheaper for oil production. Adewale Fayemi the company’s general manager was quoted at the East African Oil and Gas conference as saying that the Tanzanian route is not only cheaper but also easier, “As a company, our position remains that we are going through Tanga. I understand there are issues being discussed but our position remains the same,”.

Source: Oil and Gas Journal

Tanzania’s exclusion

Manoah Esipisu, a Kenyan state house spokesman stated that Tanzania was deliberately excluded from the regional oil pipeline talks because it didn’t involve them, stating that the issues only concerned Kenya and Uganda.

Whilst officials deny there are tensions between Kenya and Tanzania following their exclusion from discussions related to the pipeline, in March 2016 Tanzanian officials prevented Charles Keter, Kenya’s Energy secretary from accessing the Port of Tanga, whilst simultaneously allowing Ugandan officials to enter the port unchallenged.

Concerns

Concerns have been raised by environmental groups about the route of the Tanzania-Uganda pipeline, stating that they believed it would be passing through the Serengeti National Park. The Executive Director of the Tanzania Petroleum Development Corporation has however recently clarified in a statement that the pipeline will avoid all National Parks, forest and game reserves, conservation areas, hills and highly populated areas.

Many people are skeptical that the project to construct the pipeline will begin anytime in the near future due to a number of reasons, including the fact that oil is currently trading at the unprecedentedly low price of $30 a barrel.

COMMENTS

WORDPRESS: 0
DISQUS: 0