Landlocked Uganda has finally decided which neighbor will host its oil pipeline to the sea

A matter of intense speculation has finally been decided. For years, landlocked Uganda has tried to decide who to partner with for getting oil from its the western Hoima disrict—home to some 1.7 billion barrels of oil, one of East Africa’s largest reserves—to the Indian Ocean for trade: Tanzania or Kenya.

According to a communique from African officials this weekend, the pipeline will run through Tanzania. It’s a bitter blow for Kenya, which competed fiercely for the project. Instead Tanzania won the prize, and will share the costs of construction with Uganda in what promises to become one of Africa’s newest oil-exporting regions.Uganda-Tanzania_Proposed_Pipeline

The pipeline will run south of Lake Victoria to Tanzania’s port of Tanga.(Sputink/Creative Commons, CC-BY-SA-4.0)

At a summit of regional leaders held yesterday (April 24), Uganda’s foreign minister Sam Kutesa said that his country would be building the 1,400-kilometer (800-mile) pipeline to the Tanzanian port of Tanga. Officials expect its completion by mid-2020.

The fight was between not just East African countries, but some of the world’s largest oil companies, as well. France’s Total, China’s CNOOC, and the UK’s Tullow share the rights to explore Uganda’s oil reserves.

Total, one of Uganda’s largest oil investors, favors the winning Tanzanian route. Tullow wanted the Kenyan route, which would have required building a 1,500-kilometer pipeline through northern Kenya.

The Tanzanian route is cheaper and easier—at $4 billion about $1 billion less than the Kenya alternative. Plus, Tanzania waived taxes and transit charges on the oil being transported.

Tullow discovered oil near Kenya’s Lake Turkana in 2011. The pipeline was a key part of Kenya’s plan to revitalize its impoverished north by building a $26 billion transport and infrastructure corridor, the Lamu Port Southern Sudan-Ethiopia Transport corridor, better known as LAPSSET. Security being an issue near Kenya’s border with Somalia did not help matters.

Kenya insists that it will continue with construction of its own pipeline linking 600 million barrels of oil in the Lokichar basin (in the northwestern Turkana County) to the coastal city of Lamu, home to a future port. The hope is that eventually South Sudan and Ethiopia will also use the Lamu port.

But Kenya is likely to have trouble getting its oil to market. Without Uganda’s help, Kenya, Tullow, and its partners may have to spend as much as $4.5 billion to build their own pipeline. “Kenya will not get as much from the oil, will get less per barrel if it builds its own pipeline,” said Jacques Nel, senior economist at NKC African Economists in Paarl, South Africa. “To build its own pipeline at the moment is not viable,” he said.

When asked about the prospect of Kenyan oil being transported through the Tanga port as well, Kenya’s energy secretary Joseph Njoroge said last month, “It’s a figment of an idea. It can never be.”

Source: http://qz.com