Tanzania on brink of LNG deal

Country in bid to seal agreement with major oil companies

TANZANIA hopes to reach an agreement with international oil companies next year, paving the way for the construction of a liquefied natural gas (LNG) plant and new export terminal.

The new infrastructure will enable Tanzania to export some of the huge offshore gas reserves discovered recently in a region that has become a hydrocarbon exploration hotspot.

BG Group – recently acquired by Royal Dutch Shell – Statoil, Exxon Mobil and Ophir Energy plan to build a $30-billion (R401-billion) onshore LNG export terminal in partnership with the state-run Tanzania Petroleum Development Corporation (TPDC).

But a final investment decision has been held up by state delays in land acquisition at the site and establishing a legal framework for the nascent hydrocarbon industry.

As a first step, the Tanzanian state and oil companies must work out a “host government agreement” setting out terms on which the foreign investors will build and run the project.

“Discussions started in September 2016 and we expect the negotiations to last for about one and a half years,” acting TPDC MD Kapuulya Musomba said. “Conclusion of these talks will determine when the international oil companies will actually put in money.”

Oil majors are expected to push for government guarantees of stable fiscal, regulatory and commercial terms before they invest, analysts said.

Oystein Michelsen, Statoil’s Tanzania country manager, said in November a final investment decision on the LNG export terminal will not be made for at least five years or more.

It would take another five years after that decision to build the plant, he said.

The government has said it is keen to promote the LNG project but has said little about the timeline.

Tanzanian President John Magufuli ordered officials in August to speed up work on the planned LNG plant, saying it was taking too long to start.

The government said it had acquired more than 2 000ha for the planned twotrain LNG terminal at Likong’o village in the southern town of Lindi close to large offshore natural gas discoveries.

The central bank believes just starting work on the plant would add another two percentage points to annual economic growth of around 7%.

Tanzania discovered an additional 2.17-trillion cubic feet of gas deposits in February, according to local media, raising its total estimated recoverable reserves to more than 57-trillion cubic feet. It already uses some of the gas to generate electricity and power sectors such as cement manufacture, steel and textile mills and beer brewing.

East Africa has become a focus for hydrocarbon exploration after the discovery of substantial deposits of crude oil in Uganda and major gas reserves in Mozambique. — Reuters