The French oil giant is struggling to attract funding for the East African crude oil pipeline and opponents say it has no funding in place
Total Energies has given the green light to a multi-billion dollar plan to make Uganda an oil producer and export its crude through the world’s longest heated pipeline.
The oil major and its partners, the Chinese state oil company CNOOC and oil companies in Uganda and Tanzania, announcement a final investment decision at a ceremony in Kampala this week.
This includes the development of two oil fields on the shores of Lake Albert and the construction of the 1,443 kilometer East African Crude Oil Pipeline (Eacop) which, at full production, will transport 230,000 barrels per day to the Tanzanian coast for export.
Yet he refused to disclose his backers, fueling speculation that the funds are not yet secure.
“Total and CNOOC remain silent on the crucial question of where the money will come from for their incredibly risky pipeline plans,” said Ryan Brightwell, researcher at the NGO BankTrack. “I don’t see any indication that a loan agreement has been signed.”
In a press release, Total said the project represents a total investment of around $10 billion, with production expected to start in 2025 – nearly 20 years after the discovery of commercial oil in Uganda.
He made no mention of how the pipeline will be funded. A Total spokeswoman told Climate Home that the company would not comment on the funding situation.
Ugandan authorities have repeatedly stated that they expect the project to propel the country’s economic development. On Monday, Energy Minister Ruth Nankabirwa wrote on Twitter 15 to 20 billion dollars of investments were expected over the next five years.
Brightwell said it would not be the first project to make a final investment decision without all funding in place, but the strategy was “risky”. A number of these projects, for example the Lamu coal-fired power station in Kenyawere then cancelled.
Read at length: Total’s bet on Ugandan oil tests the climate commitment of international banks
While Total Annual General Meeting in May 2021shareholders raised concerns that banks publicly refusing to support the project risked impacting the pipeline’s cost of borrowing.
Total replied that “many international banks have confirmed their interest in participating in this financing” and that the project was “economically robust”.
Jeff Mbanga, a communications consultant for oil and gas companies in Uganda, told Climate Home that Total had repeatedly delayed greenlighting the project due to lack of funding.
“We hope that the announcement of the final investment decision will have an implication on funding. We assume it is in place,” he told Climate Home.
But for Brian Atuheire, executive director of conservation NGO AIFE-Uganda, the signing of the final investment decision was aimed at attracting financiers after the company “lost credibility” in the face of a global campaign against it.
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AIFE-Uganda is one of more than 50 regional organizations to have calls on Total to halt the project, warning that Uganda’s nascent oil industry “will not benefit ordinary men and women” but will “worsen the situation for communities, the country and the region as a whole”.
The pipeline route passes through a number of sensitive ecosystems and wetlands of designated international importance. Campaigners have warned it threatens protected wildlife habitats and water sources for millions of people. Thousands face displacement and activists on the ground oppose plans say they are targeted.
Due to its low sulfur content, the oil transported through the pipeline will require heating above 50C to flow. Once burned, it will emit 33 million tons of CO2 per year, according to NGO calculations.
Total argues that the project is in line with its strategy of approving only “low-cost, low-emissions” developments. This tells its shareholders that the project would cost the equivalent of 11 dollars per barrel and would emit less than 20 kg of CO2/bbl to produce.
Some people worry that our crude oil may Kudiba (not have a market), impossible! I have a shirt that is 65% polyester. When they talk about phasing out oil they are referring to fuel for cars but oil will be used for many other things like polyester etc. pic.twitter.com/zzD1ZI2QAq
— Yoweri K Museveni (@KagutaMuseveni) February 1, 2022
CEO Patrick Pouyanné said Total was “fully aware of the important social and environmental issues [the project] represents” and aimed “to make it an exemplary project in terms of shared prosperity and sustainable development”.
Thom Allen, an oil analyst at Carbon Tracker, told Climate Home that a typical barrel of light crude could produce around 390kg of CO2 when burned and that “calling an oil project ‘low emissions’ is a misnomer. language”.
He added that Total’s assertion of low production costs was based on the forecast of large oil production volumes, “which is misplaced because long-term oil demand is set to collapse with the energy transition. “.
If countries fully implement their climate commitments, the IEA expects oil demand peaks from 2025 – when Ugandan oil production is due to start – before plummeting.
“Long-cycle megaprojects like Lake Albert and Eacop risk becoming stranded assets,” Allen said.