Tanzania's bumpy road
Efforts to build a liquefied natural gas export plant in the country are not going easily
Sometime in the mid-2020s, ships will sail from Tanzania's southern coastal region to energy-hungry Asia, carrying East Africa's first significant energy exports. Or so it's hoped.
Things are going in Tanzania's favour. The plunge in global natural gas prices and a glut in supply that shows little sign of dissipating have dampened investors' enthusiasm for big-ticket projects. At home, the Tanzanian government's fondness for red tape, the country's inadequate infrastructure and a failure to put in place a legal framework for the nascent hydrocarbon industry have all emerged as headwinds. None of the developers so keen just a few years ago to build a liquefied natural gas project based on Tanzania's huge offshore reserves has yet taken a final decision to do so.
The delays could prove costly. While Tanzania has dithered, the competition has intensified-not just in neighbouring Mozambique, where Eni on 18 November announced its decision to proceed with the Coral LNG development, but also from rising producers North America and Australia. Tanzania has been left hoping for a surge in global demand that will give its own exports a market to share.
No one doubts the potential. A flurry of discoveries in recent years lifted its reserves total to 57 trillion cubic feet from as little as 1.6 trillion cf ten years ago. The domestic market isn't big enough to justify development of the costly offshore, so LNG must remain the hope. BG Group (now Shell), Statoil, ExxonMobil and Ophir Energy originally planned to build a 10m-tonnes-a-year onshore LNG plant by 2025. The $30bn project-which would include domestic supplies too-is to be located in Lindi, a town on Tanzania's southeastern coast.
Some progress has been made. In early 2016, the government finalised plans to acquire 20,000 hectares of land for the project, removing a major hurdle in its development. The state-owned energy firm, Tanzania Petroleum Development Corporation (TPDC), has already talked of the plant's capacity tripling by 2030.
Some scepticism is in order. Although TPDC says construction of the LNG plant is making progress, legal disputes over the government's policy on local content and how its natural gas reserves should be managed-a key source of friction between the investors and the government-have yet to be resolved. With that in the foreground and the global glut as a backdrop, the hopeful developers haven't been rushing to commit. Statoil's country manager told Reuters in mid-November that his firm would need five years, after the government had decided its position, before it was ready to take a final decision to invest.
Yet clarity from the government doesn't look imminent. Tanzania's newly elected president John Magufuli has yet to make his own position on how much gas should be reserved for the domestic market plain. "Magufuli's sudden shift of priorities risks undermining the country's attractiveness to investors by slowing down business activity," says Ahmed Salim, an analyst with advisory firm Teneo Intelligence. "The president's ad hoc decision making is beginning to unnerve local and foreign private-sector players".
More positively, plans are at least in place to build more robust infrastructure to target energy-hungry regional markets, including Kenya and the Democratic Republic of Congo. Tanzania's government is trying to drum up investor appetite for a gas pipeline to neighbouring Uganda.
This would tap into some regional economic success. Oil-importing countries in East Africa have taken advantage of the recent price fall, which has promoted economic growth, according to the African Development Bank's Africa Regional Integration Index Report.
The report ranks the East African Community as the top-performing regional economic trade block on the continent. And Tanzania's energy ministry has spotted the local export opportunity.
The country's own gas needs are already met in part by the Songo Songo field, on an island just off the country. It produces about 30m cf a day for the local power-generation market. The offshore trove promises much greater gasification. Indeed, Tanzania's central bank believes export revenues and increased domestic supplies would transform the economy, and place the country firmly in the ranks of Africa's middle class. But pricey offshore developments won't happen unless investors are assured of a return on their money. That means LNG-but probably not until a market glut beyond Tanzania's control starts to clear.
Tempered enthusiasm: Tanzania's energy economy Source: Petroleum Economist