Experts say an energy transition is underway, and the long-term future of energy is undoubtedly going to be focused on cleaner, low-carbon technologies.
expected to produce oil and gas by the end of 2025. While it is hoped oil and gas will
be a game-changer for the economy, some say it may be a risky bet by countries like Uganda that are about to extract their oil and gas resources.
The fear is based on uncertainties brought by the global
move to decarbonization or simply energy transition. Emerging data
including new research
by the Natural Resource Governance
Institute (NRGI). The report Risky
Bet: National Oil Companies in the Energy Transition
that National Oil Companies (NOCs) could invest about USD
1.9 trillion in the next ten years.
It said one-fifth of
anticipated investments in the oil and gas sector may be economically unviable
if global warming is kept within or below 2 degrees Centigrade.
“A huge amount of state
investments in oil projects will likely only yield returns if global oil
consumption is so high that the world exceeds its carbon emission targets,”
said Patrick Heller, an NRGI advisor
The study said of the $1.9 trillion,
about one fifth, or $400 billion, would not result in a
profit if the energy transition proceeds in line with current climate commitments.
widespread carbon capture and storage technologies are not deployed, this
figure would climb even higher.”
Lake Albert oil development in Uganda is expected to be one of the largest oil
developments in Africa with over 1.4 billion barrels of oil over a 25-30-year
period going by what has so far been found. It is expected that the Tilenga and
Kingfisher fields developments will generate up to USD8 billion in fiscal
a grim picture has been painted about new oil and gas producers like Uganda,
respective National Oil Companies (NOCS), regulators and politicians are
hopeful the given right policies and regulation, investments in oil and gas
will benefit their economies.
Authority of Uganda’s Legal and Corporate Affairs Director, Ali Sekatawa said while the
the energy transition is likely to see more electric cars globally, he thinks the
shift will not be so drastic.
is important to note that the use of electric cars today and in the future is
not a deterrent to the global petroleum industry” Observed Sekatawa. “Uganda
will be producing oil for at least the next fifty (50) years even as we join
the rest of the world in the shift to renewable energy.”
Sekatawa, like others, believes that
most of what is to be refined within Uganda will be consumed within Uganda and
the neighbouring countries. But he points out that other petroleum products will
still be imported even when Uganda will have its own oil.
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Uganda’s stake in projects like
the East African Crude Oil Pipeline and the refinery will be represented by
Uganda National Oil Company which will hold shares therein. The National Oil
Companies like UNOC are expected to play a key role in the countries
development prospects in terms of oil and gas in the energy transition debate.
National Oil Company Limited (UNOC)
Chief Executive Officer, Proscovia Nabbanja says while
she personally understands the concerns related to climate change and
environmental considerations, nobody should ignore the social and economic
the benefit that the project brings.
“And we believe these social and economic benefits are going to
propel our county to industrialization we have projected about USD 47 billion within the lifetime of the project. Imagine if you are bringing all that revenue in
an economy of USD 30 billion GDP,” she said
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Nabbanja, a professional Ugandan geologist is of the view that the
debate about energy transition should be assessed from different lenses taking
consideration of the developed and least developed countries in the South.
“Our approach as UNOC and
as a state is to curb emission while developing the oil and gas resources for
economic development,” she noted.
A new IEA report
in March this year said rapid changes
in behaviour from the COVID pandemic and a stronger drive by governments
towards a low-carbon future have caused a dramatic downward shift in
expectations for oil demand over the next six years.
studies predict that if the world decides to limit global warming to 2°C by
2050, oil demand would peak before 2025 and fall towards 35 million BPD by
2050, 70 per cent below peak levels.
The NRGI for example said NOCs
should prepare for possible various outcomes if the global oil demand peak and
later decline. Some observers believe the demand for oil and gas has peaked
while others believe it will peak during this decade.
NRGI estimated that an over USD 414 billion
capital expenditure will require a long-term price above USD 40 per barrel to break even or USD 943 billion at
a long-term price of $ 30 to break even.
The December 2020 Climate Policy
Initiative report “Understanding the impact of a low carbon transition on
Uganda’s planned oil industry” said the value of Uganda’s upstream oil reserves
had fallen by more than 70 per cent from $61 billion to USD 18 billion since 2013.
“Uganda will be impacted by risks
that is much harder to predict: The growing awareness of climate transition
risk by global financial market actors and development financial institutions,
which is starting to manifest itself through increasing reluctance to provide
capital to coal-fired power stations, fossil fuel resources and producers of
those resources,” it warned.
Recently the UK Export Finance
(UKEF) said it will cease support of fossil fuel export projects. Similarly, European
governments, as well as the new US administration, have made pronouncements in that
The Director of the UK Department for International Trade at the British High Commission in Uganda, Eric Olanya said it is clear
that a very significant traditional source of financing for oil and gas
projects is being closed down.
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Some experts in an opinion published in the
journal of international banking law and regulation said investment spend on
fossil fuels between 2026 and 2040 are projected to be between USD 0.6 trillion
and USD 1.4 trillion, depending on the ability of governments to adopt policies
required to meet internationally agreed objectives to reduce carbon emissions.