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John Daly

John Daly

Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…

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Fast Growing Tanzania Looks To Begin LNG Production By 2020

With an estimated 46.5 trillion cubic feet of natural gas reserves that are expected to rise to 200 trillion cubic feet in the next two years, Tanzania is now firmly on the world energy map as a hot spot for the global energy industry.

A recent PricewaterhouseCoopers report noted that Tanzania’s infrastructure has drawn significant investment over the past several years and predicts that within a decade it will become a leading LNG exporter, supplying markets from East and South Asia, Europe and Latin America, including Pakistan, China, Spain and Chile.

Summing up the current state of events in Tanzania’s hydrocarbon sector, the U.S. government’s Energy Information Administration recently noted, “Tanzania produces small volumes of natural gas for domestic consumption, but the country has the potential to become a liquefied natural gas (LNG) exporter in the future. Tanzania does not produce crude oil, and there has not been a commercial oil discovery in the country recently... The BG Group, with Ophir Energy, and Statoil and in partnership with ExxonMobil, have made several offshore natural gas discoveries since 2010, totaling 25 to 30 trillion cubic feet of recoverable gas resources...”

Tanzania is already one of sub-Saharan Africa's most rapidly growing economies. It has registered strong economic growth for over a decade, with annual GDP increases reaching 7 percent in 2013 and projected to reach 7.3 percent in 2014. 

Related Article: Nigeria Planning Country’s First Nuclear Power Plant

Tanzania’s natural gas deposits have now attracted the attention of a number of major energy companies, including Norway’s state-owned Statoil, Britain’s BG and Ophir Energy and U.S. energy giant ExxonMobil, which are collaborating with the Tanzanian government over constructing an LNG plant. The government favors an on-shore liquefied natural gas plant (FLNG), as opposed to an offshore plant currently being planned by investors in neighboring Mozambique.

Making the domestic energy market more attractive for foreign investors, in late 2013 Tanzania upgraded its 2008 production sharing agreement (PSA), in addition to opening up to tender seven deepwater blocks and one block on Lake Tanganyika. The 2013 model PSA template retained many provisions from the 2008 model, including minimum state participation of 25 percent, additional profits tax, and government royalty, but it also encouraged deepwater exploration by reducing the royalty rate to 7.5 percent from 12.5 percent.

Last month, Tanzania Petroleum Development Corp’s Acting Director of Exploration, Production and Technical Services Emma Msaky told journalists that the government predicted that, by 2016, Tanzania’s natural gas reserves would reach 200 trillion cubic feet. That’s based on offshore exploration at Tachui and Zafarani 3 wells that are expected to provide positive results that will add up to the government’s current estimates of 46.5 tcf from 19 wells that were drilled in the offshore blocs.

Related Article: Eni Considers Building FGLP Off Mozambique Coast

Msaky said, "Judging by the past experience, we should soon expect to have new estimates from the ongoing offshore exploration work.” She added that the government was predicting that commercial production of LNG in Tanzania would begin by 2020 or even earlier if everything went well.

But while Tanzania is in competition with Mozambique to become East Africa's first LNG exporter, politics are affecting the massive foreign investment necessary to bring major LNG projects online, which many analysts believe will be deferred until after scheduled general elections in 2015.

Eurasia Group Africa analyst Clare Allenson observed, "The constitutional review is forcing interest groups to take a stand on all the most divisive political issues [concerning the country’s hydrocarbon resources] at once... In this climate, introducing new terms to govern the nascent natural gas sector will be politically difficult, making passage of a new bill unlikely this year."

Accordingly, Tanzania’s LNG potential is there; it only remains for the government to develop a unified investment legislative code to convince foreign energy majors to finance substantial projects, as the clock is ticking.

 By John Daly of Oilprice.com




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