The East African Crude Oil Pipeline (EACOP): Economic boon or environmental disaster?

In Brussels in May, Emmanuel Macron faced an unexpected heckle at an EU summit focused on sanctioning Russia. Would the French president, asked a climate activist, denounce the East African Crude Oil Pipeline (EACOP) and call time on the project in which TotalEnergies, a French company, holds a 62% stake?

The outburst offered a fitting introduction to a seldom-discussed energy project, which Uganda and Tanzania say will revolutionise East African oil production, but which has become a target of environmental campaigners.

So successful has the backlash been against EACOP, a $5bn conduit that will stretch from the Lake Albert region of Uganda to the Tanzanian port of Tanga, that around a dozen major lenders and numerous insurers have shunned it – despite surging global demand for alternatives to Russian oil.

Set to open in 2025, the world’s longest heated pipeline will shift 230,000 barrels of oil per day and generate more than 34m tonnes of CO2 each year. In February, TotalEnergies and China National Offshore Oil Corporation (CNOOC) agreed to plough $10bn into it.

The government of Yoweri Museveni hopes the project will turn Uganda into an oil producer for the first time. The East African country has an estimated 1.4bn barrels of oil reserves.

“By investing in oil and gas deposits in friendly nations such as Uganda, Europe could decrease its reliance on hostile nations,” Museveni, in power since 1986, wrote in a recent opinion piece in the UK’s Daily Telegraph, outlining his pitch to potential customers in the West.

Laying the groundwork

In Uganda’s Rift Valley, excavators are smoothing the terrain for a vast oil processing facility. One by one, dirt roads snaking down the valley are being tarmacked.

A TotalEnergies processing facility in Uganda will clean the oil of impurities and separate it from gas, before pumping it to a refinery. Villages and grazing lands are becoming industrial areas, with Kampala developing 16 targeted employment areas including hospitality, security and IT. Some jobs will be reserved for Ugandans.

Proponents point out that the project will limit its environmental burden by seeking to keep greenhouse gas emissions below 20kg of CO2 per barrel, extracting liquefied petroleum gas to replace dirty cooking fuels in local villages and markets, and even producing solar energy.

Proscovia Nabbanja, the chief executive of the Uganda National Oil Company, insists that every dollar invested will return 10.

Financing stalls amid environmental outcry

Yet despite these ambitions, financing has stalled in recent months amid an outcry from environmentalists. JPMorgan Chase, Citigroup, Wells Fargo, Morgan Stanley, Deutsche Bank and others have ruled out any financing role. Insurance heavyweights Munich Re, Allianz, Axa and Beazley will not provide any cover.

A pinch of good news came in June, when the Financial Times and the Bureau of Investigative Journalism reported that Marsh McLennan, the New York insurance company, will take a role.

Even that news prompted a backlash at Marsh, where more than 100 staff had signed a letter citing “disastrous consequences” for its reputation and the climate. How, they asked, would clients “trust us to provide climate risk management if they know we also support projects which worsen these very risks?”

TotalEnergies insists EACOP remains on track to complete financing by the end of this year. The French company did not respond to a request for comment from African Business. Potential financial advisers for the project include Standard Bank through its Ugandan subsidiary Stanbic and Industrial Commercial Bank of China, which owns a 40% stake in Standard Bank.

John Bosco Habumugisha, EACOP’s deputy managing director, said authorities will announce financiers in the coming weeks. “What I can say is that we have very many entities that are willing to fund the project,” he said in a speech in mid-May.

Yet insiders have described the process as a headache. “It has been difficult” a source told The East African newspaper. “Every time something is said or written about this project, a financier drops out.”

Pipeline will damage environment, say campaigners

Environmental campaigners insist the pipeline poses serious harm to people, nature and the climate.

Environmental campaigner Andreas Malm, author of How to Blow Up a Pipeline, says it will will cross 230 rivers and several forest reservations, displacing around 100,000 people from their land. Its path crosses some of the world’s most important elephant, lion and chimpanzee reserves. In traversing the Lake Victoria basin, relied on by millions for drinking water and food production, the project risks a devastating oil spill, placing vital water resources at risk.

“Uganda has the capacity to feed over 200m people if they invested in agriculture,” but instead the pipeline will destroy fertile land, Omar Elmawi, coordinator of the Stop EACOP campaign, tells African Business.

The project amounts to “Dutch disease”, he says, referring to the way major oil and gas discoveries have impacted negatively on development in economies as diverse as those of the Netherlands and Nigeria. In the case of Uganda and Tanzania, vital industries such as tourism and agriculture would be harmed by the pipeline, he argues.

“Seven out of 10 countries most affected by climate change are located in Africa, despite us only contributing to less than 5% [of emissions]. Fossil fuels are not the way,” he says.

“At least 20 banks have agreed with us so far. We have had eight insurers committing that they will not be underwriting this project. And they are not doing it because they like us, they are doing this because they see sense in the arguments we are making.”

Danger of stranded assets

The governments of Uganda and Tanzania are, though, undeterred. They have been buoyed in recent months by Europe’s ambition to abandon Russian oil and gas, which provides the continent with an opportunity to make up the shortfall. 

However, this presents challenges. For example, the combined gas exports of the continent’s biggest players – Algeria, Egypt and Nigeria – are less than half of those of Russia, and stepping up production is not easy.

“Of course, there is no shortage of oil resources in Africa but their exploitation is far from being optimal,” Carole Nakhle, a leading energy expert and CEO of Crystol Energy, tells African Business.

“Take Nigeria and Angola, for instance. These two countries have struggled to meet their production quota within the OPEC+ deal as their production lags behind its true potential.”

In addition, the EU hopes to become independent of fossil fuels by 2030. Some worry Europe might have shifted towards renewables by the time new producers such as Uganda begin offering oil to global markets. European consumers are already taking steps to reduce their carbon footprints and many countries are implementing carbon pricing and taxes.

According to McKinsey, the consultancy, most oil and gas producers in Africa are highly exposed to the global energy transition, as their economies depend heavily on revenues from exports that cost 15-20% more to produce and are more carbon intensive than oil and gas produced elsewhere.

“In the next few years, once the war in Ukraine is done, these resources could be obsolete or [the two governments] won’t be able to get the amount they thought they would be making,” says Elmawi.

“These countries are going to end up with stranded assets and public debts that they are going to be paying for generations to come.”

Uganda and Tanzania each hold just a 15% stake and have offered generous tax breaks to TotalEnergies and CNOOC, leading to fears that profits will be channelled overseas.

In contrast, Elmawi claims renewables could “catapult the continent” forward, given its enormous solar, wind, geothermal and hydroelectric potential.

Growing African demand for fossil fuels

Meanwhile, discussion of EACOP comes amid a wider conversation about fossil fuels and energy supply in Africa, where leaders have balked at suggestions they should leave oil and gas reserves in the ground.

Even if Europe loses interest in Ugandan oil by 2025, the rest of Africa will not do so. Over the next two decades, population growth and industrialisation will cause energy demand across the continent to surge.

Already experts are voicing concerns that demand will outstrip supply. McKinsey predicts that African energy demand in 2040 could be around 30% higher than it is today.

African countries, including Uganda, resent suggestions that they should ditch fossil fuels on their path to development, particularly as they produce just a fraction of global carbon emissions.

Many say Western nations, who have caused the climate crisis, should reduce their own emissions to allow African nations to develop, particularly when a third of Africans live in extreme poverty, 600m live without electricity and only four in 10 have reliable access to it. 

The idea that African countries can “leapfrog” to renewable energies, like skipping landlines for mobile phones, is “naive”, Yemi Osinbajo, the vice-president of Nigeria, said in a recent opinion article.

“It is worth remembering that renewable energy already forms an important part of Africa’s energy mix, with 22 countries utilising renewables as their main electricity source,” the Mo Ibrahim Foundation said in a statement to African Business.

“However, we cannot escape the fact that renewables alone are not yet capable of meeting the continent’s growing demand and to expect them to do so risks kicking away the development ladder.” 

Others dispute claims that the world will shift away from fossil fuels in the medium term. “Like it or not, the world will remain dependent on oil for the foreseeable future,” argued Museveni. 

“Eventually, we can and must wean ourselves off it. But we can do so without crippling development or becoming even more dependent on those whom we do not trust.”

Finding a balance

Some think that environmental concerns can be met while allowing the project to go ahead. Chigozie Nweke-Eze, an energy and sustainability expert and founder of Integrated Africa Power tells African Business that growth and sustainability can be balanced.

“I think that there shouldn’t be a move to kill the project outright… The project demonstrates tangible economic value in terms of revenues and foreign direct investment for the economies of Uganda and Tanzania and this should be taken seriously.”

Still, the reticence of banks to back EACOP reflects an uncomfortable reality for Uganda in its drive to become an oil producer. With just three years to go before its ambitious opening date, the project serve as a cautionary tale for African countries seeking to enter the oil and gas space quickly, particularly in troubled regions.

“For Africa to play a more significant role and expand its production and exports, more investment is needed,” says Nakhle.

“But investment needs the right institutional framework and contractual terms to happen, while export infrastructure, especially pipelines that cross several countries, requires stable and trustworthy relationships with neighbours – something that East Africa has been struggling with.”