Big Oil payday: What will Uganda’s crude oil sell for?

2026-03-18 - 04:54

An oil rig in Hoima Every Farmer knows this and you are excited at the thought of earning really big from it. Then you reach the market, and the prices are high or have dropped. Take maize for example, one season, you sell a kilogram at Shs 1,200; the next, the buyers are offering Shs 500 or vice versa. A similar scenario, although on a larger scale, could be said about Uganda’s crude oil when it is put on the market. With Uganda in its final stages towards first oil, we are all excited to reap big from this long-awaited harvest, but the ultimate question remains: What will Uganda’s crude oil sell for? To answer this question, let’s first understand the history of pricing crude oil. In the early 1900s, oil-producing countries in regions like the Middle East, North Africa, and Venezuela had little control over their own oil. Instead, the industry was dominated by a small group of powerful western oil companies known as the Seven Sisters. These companies controlled the oil fields, transportation, refining, and global distribution. Because they owned the infrastructure and had strong political influence, they were able to set the prices. They took advantage of the producing countries by buying crude oil from them at very low prices and then selling it at much higher prices on the international market, earning huge profits. This unfair system continued until 1960 when Saudi Arabia, Iraq, Iran, Venezuela, and Kuwait formed the Organisation of Petroleum Exporting Countries (OPEC) to take back control and get fairer prices for their oil. For many years, OPEC influenced global oil prices by controlling supply. When it wanted prices to rise, it reduced production to create a shortage. When it wanted prices to fall, it increased production. However, OPEC’s power has weakened over time because other countries began producing more oil too. Today, no single country controls the price. Oil prices are influenced not only by supply but also by global demand, economic growth, wars such as the current conflict in the Middle East, which has disrupted oil shipping; sanctions, pandemics like Covid-19, and even trading speculation about future events. So, what price is Uganda’s crude oil blend likely to fetch? Uganda is expected to produce about 230,000 barrels of oil per day at peak production. Since this is less than 1 per cent of the global oil supply, Uganda will not have the power to influence global oil prices. Instead, it will be what economists call a price taker, meaning it will sell its oil at prices already set in the international market. These prices are guided by global crude oil benchmarks such as Brent (UK), West Texas Intermediate (USA), Bonny Light (Nigeria) etc. As a price taker, Uganda’s oil will be valued in relation to these benchmarks, but the final price it receives will depend on transport costs and the quality of its crude. For example, if Brent crude is trading at $100 per barrel and Uganda’s crude is sold at Kabaale in Hoima before entering the East African Crude Oil Pipeline, the pipeline transport cost of about $12.77 per barrel would reduce the value to $87.23. The price does not stop there. Buyers also adjust it to reflect the crude’s quality characteristics. Uganda’s oil is low in sulphur, which refiners generally prefer, but it is also heavy and waxy, which can make it more costly to process and transport. Depending on global refinery demand, this quality can attract either a premium or a discount compared to the benchmark price. Now, before we get ahead of ourselves and start thinking that all this revenue belongs to Uganda, it is worth noting that these figures reflect gross project revenue, before factoring in the production-sharing agreement with the oil companies, under which we shall actually share crude oil rather than the revenues from crude oil using the sharing mechanism stipulated in the contracts. That is a discussion for another day. For today, the bottom line is this: Uganda’s oil doesn’t come with a fixed price tag. What we will earn will depend on global market conditions, transport costs, the nature of our crude, and buyer preferences. Some years will bring in strong earnings, while other years may yield lower earnings. Because oil, just like maize, might sell well today, but no one can predict what tomorrow’s market will hold. For now, we continue the race to first oil. The good news is that while we run the race towards first oil, Uganda has reaped benefits before the big oil harvest. Through national participation, local companies are winning contracts, Ugandans are getting jobs, and skills are being developed. The government also earns from taxes such as Corporate Income Tax and Pay As You Earn, as well as non-tax revenues such as license fees and signature bonuses. These are the early fruits of good planning and patience. Unlike countries that rushed straight to pumping oil and missed out on these foundational gains, Uganda has taken the time to build from the ground up. The full harvest is still ahead, but the early signs show we are on the right track. The Author is a senior petroleum economist and financial analyst at the Petroleum Authority of Uganda (PAU)