This is the best time to invest in oil sector, says Energy Ministry

What you need to know:

First oil unlikely by 2023. According to some experts including Dr Adam Mugume, Bank of Uganda executive director of research and acting deputy governor, it is unlikely that Uganda would have achieved first oil in the next three years. The earliest, they say could be 2025 or beyond.

This would be the best time to invest in the oil and gas sector, according to Energy Ministry permanent secretary Robert Kasande.
Speaking to Daily Monitor yesterday, Mr Kasande argued that economically slow periods, brought about by pandemics such as Covid-19, make for the best investment periods in the oil and gas sector because of cheap contracts.

“It is better to make investment decisions of low oil price because then the contracts that are sub-contracted by international oil companies come in cheaper,” he said explaining: “Much of the oil industry uses a lot of steel in the pipelines, so when the oil price is low or there is some kind of recession, prices of steel come down, making it a good time to make an investment decision.”

The need to conclude discussions for the final investment decision, he said, is now more pressing than ever.
“What is impacting us more is not Covid-19, nor the oil price, but for us to conclude what we have been discussing and we are working towards concluding,” he said.
Timelines for Uganda to conclude discussions on the final investment decision have always been shifting.

However, it is expected that the decision will be taken in 2020.
Mr Kasande was responding to Dr Adam Mugume, Bank of Uganda executive director of research and acting deputy governor, who, while speaking during a Webinar organised by Stanbic bank, said that the slump in oil prices will greatly affect investment in the oil sector.
“If the international oil prices remain in the range of $30 per barrel, is it profitable for private sector investment and Uganda as a whole to continue investing? The payback becomes constrained,” he said.

Since Uganda hopes to trade her oil at about $40-$45 (Shs150,833-Shs169,667) per barrel, Mr Mugume said, the current $30 (Shs113,125) will not make economic sense.
“I think we are likely to see slower activity in the sector than previously envisaged. So where we were talking about oil coming out around 2023-24, might be pushed to 2025 or beyond, given that Uganda needs heavy borrowing to support the sector,” he projected.
Oil production timelines have been shifting since 2010 with several dates set and then shifted.
However, Mr Kasande said that once final investment decision is taken, Uganda will need another three years before it can start production. By that time, there is a likelihood that the price would already have bounced back.

Plagued by low prices
The oil industry, including international oil companies investing in Uganda, are currently facing a lot of challenges that are rivalling historic lows.
The sector has been plagued by low prices, high supply and very low demand, which is forcing countries to cut production.

According to the Guardian, the world’s largest oil producers within the Organisation of the Petroleum Exporting Countries, agreed with allies and the G20 countries to cut upto 20 million barrels a day from production.
Even then, global oil prices have slumped further after the international Energy Agency (IEA) warned that the biggest production cuts in history will fail to offset the deepest fall in demand in 25 years.

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