Tullow sees opportunity cost if Kenya-Uganda pipeline plan fails

Tullow Oil Plc, which has discoveries in Uganda and Kenya, sees an opportunity cost if the two countries don’t collaborate on a pipeline to ship their crude to the Indian Ocean, a company official said.

Landlocked Uganda is deciding on whether the pipeline will traverse northern Kenya’s desert to a proposed port at Lamu, or south past Lake Victoria to Tanga on Tanzania’s coast. While Tullow, which discovered Uganda’s oil, has a seat at the talks, the pipeline decision is “above our pay grade,” Tim O’Hanlon, the London-based company’s vice president for African business, said in an interview.

“For us we think of it as an East African integrated regional infrastructure and the opportunity cost of Uganda and Kenya not cooperating on the pipeline is enormous,” he said Wednesday in Tanzania’s commercial capital, Dar es Salaam. “A joint pipeline has real tangible economic value, measurable value for individual countries Uganda and Kenya, and East Africa in general.”

Tanzanian President John Magufuli said earlier this month he’d agreed with his Ugandan counterpart, Yoweri Museveni, to route the conduit via his country at a cost of about $4 billion, with Total SA helping fund the project. Nagoya, Japan-based Toyota Tsusho Corp. estimates the Kenyan route may cost about $5 billion.

Separate Pipelines

A Ugandan decision to route the pipeline through Tanzania would probably mean Kenya would need its own facility to transport its oil, according to O’Hanlon. “We are talking about two separate pipelines or a joint pipeline through Kenya,” he said.

Tullow along with Total SA and the China National Offshore Oil Corp. are developing Uganda’s oil fields in the western region of Hoima. The Chinese company was awarded its production license in 2013, the only one so far issued by Uganda’s government.

O’Hanlon said Tullow expects its first production in Uganda about three or four years after the company makes its final investment decision in 2017, and that it will be awarded production licenses in the next few weeks.

“It’s taken time but it’s going fine and it’s of course one of the key issues that we have to have in place before we march into production,” he said.

– Bloomberg