January 22, 2015

Impact of Falling Oil Prices Difficult to Predict – PEPD

The global crude oil prices have halved since June 2014, a factor that has put investments in Uganda’s oil sector on the line.

fuel

 

An official from The Petroleum Exploration and Production Department (PEPD) says that it difficult to predict the impact of falling oil prices on the development of oil in Uganda.

“There is no crude oil production in the country yet therefore the impact of oil prices on the development of the oil and gas sector in the country is more difficult to predict,” Ernest Rubondo, Commissioner PEPD said.

He points out that oil development is a long term investment and that such price volatility is factored in the planning process.

The 2009 National Oil and Gas Policy refers to Uganda developing its own oil resources to mitigate the impact of unpredictable oil prices.

“In order to reduce the impact of oil price shocks and the erratic supply of imported petroleum products on the economy, this policy shall support use of the country’s oil and gas resources to meet domestic demand, export the surplus within the region and subsequently overseas,” the policy reads.

It however makes no mention of the impact of falling oil prices on the development of oil in Uganda itself.

Uganda is planning for investment in the oil refinery and is also currently sourcing for the lead investor in the project.

Additionally, the government is yet to issue production licenses to Tullow and Total. Government has only issued one production license and that was in 2013 to CNOOC for the Kingfisher discoveries near the shores of Lake Albert.

Rubondo also says that all exploration activity came to a halt in 2014 as oil companies wait for the next phase – being issued production licenses.

“Although low oil prices can impact the development of oil and gas fields especially those whose economics are marginal, it is too early to predict how low the prices will drop this time round or how long this reduction will last,” Rubondo admitted.

Companies like Tullow are already adjusting themselves to cushion the shocks of falling oil prices. Last week, the oil company announced a cut back in exploration costs to $200m from $1bn in 2014.

The company also told our reporters that it will not participate in the next round of licensing for more exploration blocks, if the oil price remains depressed.

Furthermore, the company too will be making announcement on shrinking its staff across the world to cut back on costs.

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