SNG: Race for East Africa oil projects: $16bln Lamu refinery puts Ugandan plan to the test

By Zawya5 hours ago Updated

By Staff Writer

New mega refinery on Kenya’s coast is reshaping the petroleum landscape as Kampala navigates competing projects to capture more value from its crudeFor more than a decade, President Yoweri Museveni has defended Uganda’s decision to export its crude oil south through Tanzania rather than east through Kenya to the port of Lamu.

Security concerns, regional politics and the economic benefits Tanzania would gain from the pipeline all helped shape that decision.

But the emergence of a $16 billion Dangote East Africa Refinery in Kenya’s coastal town of Lamu is giving a new dimension to a choice that once appeared settled. At the groundbreaking ceremony for the facility on Wednesday, Nigerian industrialist Aliko Dangote announced plans for a 700,000-barrel-a-day (bpd) facility that he says will serve markets across East Africa and beyond.

President Museveni, who was among five heads of state and government who attended the event, welcomed the project, but made it clear that Uganda would not invest in it.

Kampala, he said, remains committed to its own 60,000 bpd refinery at Hoima and has separately signed a memorandum of understanding with Tanzania and energy trader Vitol for a refinery in Tanga.“I am very happy about this refinery,” the Ugandan leader said. “We are going to build a small refinery in Uganda. We had planned this long ago. We can’t change that.”The contrast is striking. Lamu is being positioned as a major regional refinery with a stated 40-month construction and commissioning target. Hoima is still working towards a final investment decision, while the proposed Tanga refinery remains at the feasibility and early implementation stage.

If the Lamu schedule holds, the refinery could be operating by around 2030—potentially before either Uganda’s or Tanzania’s proposed facilities.

That creates an uncomfortable question for Kampala: What happens if the infrastructure Uganda chose not to use becomes commercially viable before some of the infrastructure it chose to build?The question goes back to Uganda’s decision in 2016 to select the southern export route. The proposed Hoima–Lokichar–Lamu route was shorter than the eventual Hoima–Tanga pipeline, but it was substantially more difficult and expensive to develop.

Toyota Tsusho’s feasibility work put the northern pipeline system at about $4.5 billion. Studies by the joint venture partners TotalEnergies and CNOOC produced estimates of around $5.2 billion.

Those figures also did not capture all the challenges associated with Lamu. Contemporary assessments put dredging at roughly $110 million and estimated that port reclamation could cost another $800 million to $1 billion.

The Northern Corridor also crossed difficult terrain and areas with limited transport infrastructure, while Lamu itself required substantial development.

By contrast, the southern route through Tanzania was initially estimated at about $3.5 billion and connected Uganda to an established port at Tanga.

Museveni has repeatedly defended the choice not only on cost and security grounds but also on regional economics.

Uganda’s crude would move through Tanzania via the East African Crude Oil Pipeline (Eacop), generating jobs and a reported tariff of $12.77 per barrel for Tanzania.

The logic was therefore broader than simply finding the shortest route to the sea: Uganda would commercialise its oil while creating a major economic corridor through a neighbouring country with which it has close political and commercial ties.

From oil terminal to refining hubBut the Lamu project changes the context. Dangote’s refinery is not simply a competing export terminal. The project is being presented as a regional refining and distribution hub, with intended markets, including Kenya, Uganda, Tanzania, Ethiopia, and South Sudan, and the Democratic Republic of Congo.

Kenyan President William Ruto described the groundbreaking as a transformation of a long-standing regional ambition into an industrial project.

The refinery is also intended to process crude from multiple sources. Kenya’s Lokichar fields are part of the proposed supply mix, while Ruto and Dangote executives have indicated that crude from Uganda, South Sudan and the DRC could also form part of the refinery’s supply strategy, alongside imported crude.

That potentially gives Lamu something Uganda’s original pipeline via the Northern Corridor proposal did not have: a large downstream market anchored by a major refinery.

Yet Uganda currently plans to send its crude in the opposite direction.

Unoc has appointed Vitol to market Uganda’s crude, with the energy commodities trading company saying “Pearl Sweet” crude is well suited to Asian refineries. Uganda expects its first exports early next year, while the Hoima refinery continues towards a final investment decision. That means Uganda could initially export crude to refineries in Asia and the Middle East while importing refined products from elsewhere — even as a giant refinery is being built at a port that was once considered as the destination for Uganda’s own crude.

Unanswered questionsThe Ugandan leader hinted that while the offer of equity to regional countries is a smart idea, it does not address the issue of jobs for all East Africans, arguing that if the mega refinery plans to source crude from Uganda, South Sudan and DRC, then it must employ their nationals too.“If you say all the jobs will be for the wa Lamu, okay, maybe if you are using imported petroleum… imported crude,” he said.

With a nameplate of 700,000 bpd, the project requires an enormous and reliable supply of crude. Yet the region’s currently producing fields are nowhere near that level, with Kenya’s Lokichar development still at an early stage, while Uganda’s planned production is expected to peak at around 230,000bpd.

South Sudan is an established producer but its output has been constrained by infrastructure, conflict and disruptions along its existing export routes, dipping below 100,000npd from pre-war levels of 350,000bpd. The DRC’s current oil production is small, despite its potentially significant undeveloped resources.

With the region reliably supplying 250,000–300,000 bpd, Lamu will need to import more than 400,000 bpd—a substantial share of the feedstock sourced from outside the region—raising questions about the refinery’s economics and the regional strategic rationale for processing local petroleum.

Hoima remains centralMuseveni’s commitment to domestic refining is longstanding. He has said Uganda’s oil should not simply be exported as crude and has repeatedly cited his experience studying Iran’s refinery system as an influence on his decision to insist on a domestic refinery.“When I was struggling with those efforts, they told me refineries don’t make profit,” Museveni said at Lamu. “Then I said ‘why do those who build them, build them?’”The Hoima refinery is designed primarily to supply Uganda and markets in the interior of Africa. It will have a capacity of 60,000 bpd, compared with Lamu’s proposed 700,000 bpd.

Both projects use Honeywell UOP technology, but their financing models, scale and commercial structures are fundamentally different.

For Kampala, the strategic case for Hoima is not necessarily undermined by Lamu. A domestic refinery would give Uganda direct control over a portion of its refined-product supply, reduce dependence on imported petroleum products and potentially serve neighbouring landlocked markets.

The question is whether the economics of having several large refineries in the region will support all of them.

The southern route may ultimately produce its own refining hub. Tanzania’s petroleum authorities say technical teams have already begun work on the proposed Tanga refinery.“We have started,” Mussa Makame, managing director of the Tanzania Petroleum Development Corporation, told The EastAfrican. “This week our technical teams are meeting in Tanga to kick off feasibility study for the project, address land issues and others.”Uganda has signed an MoU with TPDC and Vitol covering the proposed development. Energy Minister Monica Musenero has said the arrangement would allow Uganda to leverage Tanga’s strategic position to serve Asian and Middle Eastern crude markets while creating another logistics corridor for Uganda and neighbouring countries.

This week, the two countries handed over a site at Chongoleani, Tanga, to Worley Consulting, paving the way for feasibility studies for infrastructure to receive, store and transport refined petroleum products.

The consultant is expected to undertake soil testing, environmental assessments and preliminary designs before the two countries move to the next stages of the project.

Speaking about the development, Assistant Commissioner for the Downstream and Midstream Petroleum Division at Tanzania’s Ministry of Energy, Grace Mwakasege, said the project was strategic to the country’s ambition of developing Tanga into a major energy centre."The infrastructure would help position Tanga as an important hub for oil and gas activities in the East African region," she said.

The project forms part of a wider strategy for Uganda to strengthen regional petroleum infrastructure as the country moves towards becoming an oil producer.

Uganda’s Assistant Commissioner from the Ministry of Energy and Mineral Development, Engineer Geoffrey Ogwang, said cooperation between the two countries would have wider economic benefits beyond the petroleum industry.

This development leaves Kampala contemplating three refining options in the region: its own 60,000 bpd plant at Hoima, the proposed refinery at Tanga linked to the Central corridor, and a 700,000 bpd facility at Lamu.

Museveni himself appears comfortable with the possibility.“The refinery here in Lamu can be there. The one in Tanga can be there. The one in Uganda will be there. The one in Nigeria can also be there,” he said. “But I’m really happy with this one at Lamu too.”The question, however, is no longer whether the region can build refineries. It is whether it can support them economically — and whether Uganda’s decision to send its crude south will ultimately leave it outside the region’s most important new refining hub.

That is the irony of Lamu. The port Uganda bypassed may now become a major destination for the region’s crude and refined products, while Uganda’s own oil will initially travel in the opposite direction.

For a country that spent more than a decade debating where its oil should go, the next question may be less about the route itself than about where the value added from that oil will ultimately be captured.

So, in this race of East Africa’s oil projects, who will finish first?Additional reporting by Anthony Kitimo