Bulk of Uganda Oil Production to Start in 2017

Uganda expects the bulk of its commercial oil production to start by the end of 2017 as it awaits a pipeline to export crude oil and a refinery to be built, the minister of energy and mineral development said.

The east African country first discovered crude deposits in the Albertine rift basin along its border with Democratic Republic of Congo in 2006.

The discovery could lead to billions of dollars in revenue from expected crude oil exports of 140,000 barrels a day (bpd) and production of about 200,000 bpd, according to the minister, offering a boost for East Africa's third-largest economy.

Crude extracted will be shared between a thermal power generation plant, a planned refinery and an export pipeline.

While some smaller volumes of oil could be produced from 2016 to generate energy for domestic consumption, the bulk of production will only start the following year, once the refinery and the pipeline are completed, minister Irene Muloni said.

"Everyone is working really hard so that we can have both projects (the refinery and the pipeline) ready by 2017," Muloni told Reuters in a phone interview.

"So we are looking at 2017 as a magical year to make things really happen but should we need it for power generation, we could produce some crude earlier, in 2016."

Peak demand for power is about 480 megawatts but growing quickly, at about 10 percent a year, while the country's capacity is about 850 MW, 150 MW of which is in stand-by, the energy ministry says.

Should demand outstrip supply, the country will start producing oil in 2016 to supply power domestically, as an interim measure until it completes three hydro power plants, expected to start operating between 2017 and 2019.

Treasure Hunt
Uganda moved closer to getting its hydrocarbons industry off the ground earlier this year when it signed a memorandum of understanding laying out a blueprint for the commercial development of its oil fields with three oil firms - Britain's Tullow Oil (TUWLF), France's Total and China's CNOOC.

Government geologists estimate Uganda's crude reserves at 3.5 billion barrels but only about 30 percent of the country has been explored, according to the minister.

Licensing rounds for vacant petroleum exploration acreage should be announced later this year and about 40 companies, mainly foreign, have already expressed their interest.

"We should be able to announce bidding rounds by end of this year and we'll be putting in place the national oil company of Uganda to do business on the side of government," Muloni said.

In December the energy ministry announced five consortia and one individual firm had been short-listed to bid for the $2.5 billion refinery.

The individual company short-listed is Japan's Marubeni Corp., while the five consortia are respectively led by Petrofac (POFCF), Global Resources, China Petroleum Pipeline Bureau, SK Energy and Vitol.

The lead investor - which should be announced in July - is expected to take up a 60 percent stake, while the remainder will be split equally among Uganda and other interested Eastern African countries.

"So far Kenya has expressed interest and also Rwanda and Burundi. We are waiting for Tanzania," Muloni said. "We'll offer to the partner states equal shares and if they finance their share that would be good. If they choose to subscribe to a lower figure then the balance can be taken by Uganda."

Uganda plans a refinery with capacity of 30,000 bpd gradually rising to 60,000 bpd.

(By Silvia Antonioli; Additional reporting by Elias Biryabarema and Edmund Blair; editing by Jason Neely)