Leading oil and gas exploration company Tullow Oil Uganda has warned that not all envisioned oil benefits for the country can be guaranteed amidst the current global market dynamics especially in the oil industry.
Fading are days when the oil value shot to the point of being dubbed the “black gold”.
Tullow Uganda’s General Manager Mr Jimmy Mugerwa expressed fear that the global market was increasingly becoming unfavourable for Uganda’s emerging oil industry.
Mugerwa was on Tuesday speaking at an anti-corruption forum held by URA and Transparency International at Imperial Royale in Kampala.
He explained that Uganda’s budding oil industry was likely to be hampered by more oil discoveries coming up across the globe and hence the price fall thereof.
As production preparations hit the top gear, Uganda hopes that oil contributions toward its vision to transform into a middle income economy would be immense.
About 15,000 jobs are projected to be created in the construction phase alone and more than 150,000 in the long-run.
The high hopes were recently boosted by an unprecedented 87 percent growth in the county’s oil reserves recently announced following fresh appraisals.
Uganda’s inventory currently stands at 6.7 billion barrels, up from 3.5 according to Ministry of Energy records.
The new figures came when some of the wells were discovered to be broader, while more oil was encountered in additional layers of some of fields during the appraisal.
Next year is expected to see massive infrastructural development in the sector as government also looks around for a lead investor to establish a 60,000 barrel oil refinery.
Mr Mugerwa however, noted with concern that the prices of oil around the world are dropping significantly.
“For instance in January this year, the price of oil was at $109; today its $80,” he said. “If Uganda at this moment was producing oil, that means the revenue would have shrunk by 20 percent.”
“And for companies like us, if you are making an investment decision, it would be that of a project which is 20 percent less profitable.”
Mr Mugerwa added that the global supply of oil too is steadily increasing, partly explaining the price drops.
For instance he noted, the US today is becoming self sufficient in supplies, so much so that in August this year, Nigeria didn’t export a single drop of oil to USA for the first time since 1976.”
“There is also talk that by 2020, the US could become an oil exporter; you realize they are busy turning all their import terminals into export terminals,” he added.
In the event that the US establishes such a sturdy oil industry, Mugerwa warns that Uganda is unlikely to attract powerful investors, as most of them would be rushing to a more competitive USA.
All hope however is not lost, especially if government commits to supporting the industry now, in its infant stage.
“Our government is not powerless to work on everything that can be done in terms of political and fiscal stability, regulations and decision efficiency as well as improving the legal framework.”
This, he says, would go a long way in increasing Uganda’s competitiveness, in the dynamic oil industry.