Is Oil Really the Economic Fuel Uganda Needs?

By Charlotte Service

The 21st century has seen the global pursuit for greener and cleaner energy emerge more prominent than ever. Yet, whilst the general intent to phase out the use of fossil fuels is clear, today they still remain the ‘ultimate source of 85% of energy’.

The current system accounts for around ‘two-thirds of greenhouse-gas emissions’, not to mention being responsible for the deaths of ‘over 4m people a year’. There is clearly no lack of incentives to transition into a greener world, and most countries have long since set out on their path to source more sustainable and environmentally friendly ways of producing energy. Yet, whilst tackling climate change appears to be a top priority for most of the world, one country is about to embark on a rather crude journey. 

On the first of February, French oil company TotalEnergies, in partnership with Uganda National Oil Company and China National Offshore Oil Corporation, revealed that Uganda is soon to become the world’s newest oil producer. They released the news following the approval of the ‘$10bn project’ which aims to extract oil reserves situated along the north-western border of the country. The oil in question, currently residing at the bottom of Lake Albert, was discovered back in 2006, but the ‘1443-km electrically heated pipeline’ required to export the oil via Tanzania – soon to be the longest of its kind – has unsurprisingly, delayed progress towards the project getting the go ahead. 

Given both the extensiveness and highly disruptive nature of the pipeline, in addition to growing concerns about climate change, questions have been raised as to how the project was in fact able to meet approval standards. The first oil flow is set to commence in the year 2025, but the impact of the project has already started to take its toll. The pipeline is at the heart of the damage; not only is it invasive, but those upon whose land it resides have yet to receive sufficient compensation for their losses. Unable to plant crops, people have lost their main source of both food and income. For many, the little reparation that has been offered is prearranged to terminate after a set date, which in some cases was ‘almost three years ago’. By the time that the oil extraction begins, the project will have entirely displaced ‘2,000 households and directly affected more than 20,000’. Complaints have been made arguing that the compensation for the oil infrastructure fails to accurately reflect the scope of the damage, but any such claims have been largely overruled by the government, leading only to the unjust arrests of those who are brave enough to step forward.

TotalEnergies has said that it is aware of the social and environmental factors at play and has stated that it has strong intentions to ensure that the industry supports and benefits those who might be adversely affected. However hard to believe, the corporation also insists that the investment does fall in line with the company’s promise to involve itself only with projects itemized as “low-cost and low commissions”.

Yet, regardless of the environmental and social issues entangled with the project, the big question is whether the plant has the capacity to make Uganda any richer. Ultimately, if the investment is to be worth the problems caused by the land procurement and political unfairness, the oil must at least ensure that the country prospers on an economic level.

A UN study predicts that the oil will increase government revenue ‘by a third over the estimated three-decade life of the project.’ The development phase alone is estimated by the government to bring ‘$15bn-20bn of investment, of which they hope 40% might go to Uganda-based companies’. However, whether this estimation is realistic is largely uncertain. The potential for corruption within the country’s government means there is a risk that the oil money ends up in the hands of politicians who are entirely uninterested in promoting economic and social progress in Uganda. The current president will be in his 80s when the plant starts to run – it is the leader who follows him that will dictate the project’s ability to effectively support and stimulate the country, economically or otherwise.

Perhaps the more obvious thing to consider is the stability of oil itself. Global oil consumption is expected to ‘peak before 2030’. The pandemic did initially have an adverse effect on the price of oil, and although the market has since recovered, the value of the oil reserves in Uganda has still dropped considerably since investors attained their stakes. All of this is mainly down to oil forecasting, and going by the current views on climate change, it is likely that the price of oil will remain in a state of volatility. This, in combination with the volume of corporations pledging their commitment to sustainable investment, makes it is no surprise that the project is ‘still seeking funders for the pipeline’, struggling to secure support from big investors.

Like many of the world’s poorer countries, Uganda already suffers from the knock-on effects of the carbon emissions for which wealthier nations are responsible. Global warming has distorted the seasons, and an under-informed population means that farmers no longer know when or what to plant. Without measures to adapt to the already existing effects of climate change, not to mention those to come following the realisation of the plant, the governments forecasts that the country could experience ‘costs amounting to some 3-4% of GDP a year in coming decades’. If things continue in the same direction, the success of Uganda’s oil extraction will become even more crucial.

“The views expressed in this article are the author’s own and may not reflect the opinions of The St Andrews Economist.”

Image source: nsenergybusiness 

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