Since 2006, Uganda has made several oil and gas discoveries and the government plans to transform Uganda from a low-income into an upper middle-income country by 2040 and from a net importer to a net exporter of oil and its products with wider regional benefits.
Whereas the latter part of this expectation will be easy to achieve, transforming the country from a low-income to middle-income will be met with some challenges.
Innovations in science are making fossil fuel less useful to humanity with time. This is a big problem, as innovation that provides alternative solutions to the use of fossil fuel is a major threat to Uganda’s economic advancement plan.
Such innovations wear away the value expected from the country’s oil regardless of when production will commence. With each passing year, this threat escalates as scientists churn out ideas on alternative sources of energy and as the world works to move away from high reliance on fossil fuel.
France announced that they will end sales of petrol and diesel vehicles by 2040 and Volvo says that it will only make fully electric or hybrid cars from 2019 onwards. In Norway, only electric or plug-in hybrid cars will be on sale by 2025. The Netherlands is also looking at 2025 to ban diesel and petrol cars. The UK plans all on new cars being electric or ultra low emission by 2040.
This is a general global trend by leading car makers. Proterra, a Silicon-based entity and leader in the design and manufacture of zero-emission electric buses that reduce fleet operating costs and eliminate dependency on fossil-fuels currently sells a Catalyst E2 bus that can drive 350 miles on a single battery charge.
A test of their product has at one time delivered a drive of 1,101.2 miles on a single battery charge at the Navistar Proving Grounds in New Carlisle, Indiana. This is a longer distance than a return trip between Nairobi in Kenya and Kampala in Uganda.
Of course fossil fuel has other uses such as being a source of energy for heating, cooking, and electricity generation and in the manufacture of plastic and other important organic chemicals but if its use as fuel for vehicles is diminished and possibly eliminated in future, the value of oil and gas production will be greatly reduced.
The Institute for Energy Research estimates that about 45 per cent of oil produced is converted to gasoline while 30 per cent is turned into heating oil and diesel fuels.
70 per cent of all diesel produced is used for transportation. According to the Centre for Climate and Energy Solutions, transportation accounts for 62 per cent of petroleum consumption globally.
By implication, a replacement of oil in fuelling transportation would slash demand for the black gold by around 50 per cent, overall.
There are also other innovations that similarly threaten the oil and gas sector such as a recent discovery by scientists at Cardiff University in which greener and cheaper fuel can be created from methane. They are able to create methanol using nanoparticles of gold to initiate a chemical reaction between methane, oxygen and hydrogen peroxide.
This could become an alternative to petrol. It is also believed that the new system of creating methanol could be used to create chemicals and plastics.
Similar to other technological changes that have quickly taken over the whole world such as advances in uptake of solar lighting and mobile telephone technology, the transit to electric cars and alternative energy sources could happen so fast, to the detriment of oil owners.
It is therefore obvious that lucrative production of oil and gas is being overtaken by events in the science space. Uganda will attain its goals of producing oil and gas but the returns may not be as impactful as initially thought.
It is possible that the Ugandan government is borrowing monies to accomplish its development plans basing on anticipated oil revenues. Since 2009, the country’s debt has been growing, and debt to GDP ratio has adjusted upwards by up to 19 percentage points since then.
With decline in demand of oil imminent, the future could unfold with great difficulties for the country to meet debt obligations. If the country’s actual oil production delays significantly, this scenario will be worse.
Raymond is a Chartered Risk Analyst and risk management consultant