OIL & GAS

Tanzania dreams of a viable gas sector

Tanzania economy is set to benefit immensely from the country's huge gas deposits.

Tanzania, with its huge gas deposits, is soon to transform not only its hydrocarbon sector but its economy too. Already the government has initiated strategies to prepare the country's economy to accommodate huge investments expected in anticipation of major commercial discoveries within the next five years. The imminent discoveries, whose quantity is yet to be ascertained, will result in multi-billion dollar foreign direct investment. Aside adding significant revenue to government coffers, it will play a major part in the country's export volume. So sure of the huge volume is the Tanzanian government that Mustafa Mkulo, minister of finance and economic affairs, in a letter written to the International Monetary Fund (IMF), said the discovery will turn the country into a "gas economy".

Investment will, undoubtedly, pour in to the sector. Already, the country is set to receive investment worth about $7 billion from just one company, Ophir Energy and its partner British Gas. Other top hydrocarbon companies like Petrobras and Statoil all have drilling programmes planned for 2012. Analysts say investments in gas exploration and infrastructure in the east African country will run into billions of dollars. Petrobas and Ophir are spending close to $2 million per day in Tanzania. The country has proven natural gas deposits of about 7 trillion cubic feet. However, figures closer to 60 trillion cubic feet would likely to be confirmed in the long run. About 3.5 trillion cubic feet of the reserves have already been commercialized. Tanzania's gas reserves border those of Mozambique in the Ruvuma basin where commercial natural gas reserves worth about $800 billion have been discovered by Eni SpA and Anadarko Petroleum Corp.

Tanzania's President Kikwete

"Discussions on how to position the country to best take advantage of the huge natural gas potential have been initiated" said Mkulo in the letter to the IMF.

The country is taking a proactive step in preparing the economy for major gas investment. Already, government is drafting a natural gas master plan as well as a gas and petroleum revenue management bill which will cover budget treatment of gas revenue. Also the tax regime will be reviewed to ensure adequate cover for the gas sector. Minister of Finance Mkulo, further said that his ministry, the Planning Commission and Tanzania Revenue Authority (TRA) will prepare a report by year end identifying what steps to be taken to prepare the country's macroeconomic management for the new gas economy.

The Tanzanian government is also planning a major gas project - the construction of a gas pipeline from Mnazi Bay in Mtwara to Dar es Salaam to carry fuel for electricity generation purposes. The project valued at $1.058 billion and to be funded by Exim Bank of China, is expected to be operational by year end 2012. The project includes construction of gas processing plants at two locations with the capacity to carry a maximum of 700 million standard cubic feet per day, enough to generate up to 3,500 megawatts of power. The financing package involves a combination of a concessional loan (75 percent), a commercial loan (20 percent), and five percent contribution by government.

Gas is not the only mineral that Tanzania maybe rich in. Reports of preliminary exploration have suggested the presence of oil in Mozambique which may also be true of Tanzania. About 23 wells would be drilled offshore Tanzania, Mozambique and Kenya doubling what was drilled in 2011, according to recent research findings. Experts say Tanzania will be a major focus of drilling this year as companies hope to find oil in commercial quantities.

Reports of huge gas deposits have drawn the interest of major oil and gas exploration companies including BP, Petrobras, Statoil, Exxon Mobil and Shell. Also collaborations are taking place. Shell teamed up with Petrobras last October to explore Tanzania's coast. BP had been in talks on east Africa projects with Ophir, which together with its partner, BG Group, have found about 4 trillion cubic feet of gas in Tanzania. Ophir will be joined by Mubadala Oil & Gas of Abu Dhabi to explore Block 7 in Tanzania. Statoil ASA, Norway's largest oil company plans to drill a well this year at an exploration block in Tanzania in partnership with Exxon Mobil.

As it is, Mozambique and Tanzania may eventually rival Qatar and Australia as the world's biggest suppliers of liquefied natural gas (LNG). The east African deposits found so far are large enough to justify construction of at least eight LNG production trains. Today Qatar has 14 trains operating, while Australia has at least six trains with about $250 billion in projects under construction or planned. Experts say the gas industry development will be a catalyst for the development of Tanzania's predominantly agriculture economy by stimulating other sectors such as supply services and thus creating employment opportunities.

Keen as the government may be to transform the economy to a gas one, analysts have cautioned the Tanzanians against rushing to sign contracts that may turn-out to blunders for the country. They want government to "take charge as a large player like South Africa and Norway whose economy are thriving smoothly on their natural resources." So aside calls for a good legal framework to underpin industry operations, there are also calls for the development of institutional capacity, especially in the areas of development of technical schools and faculties to train enough skilled personnel, such as gas economists, petroleum engineers, for the industry.

Tanzania's gas exploration is governed by the Petroleum (Exploration and Production) Act 1980. There is a need to update the law as, according to experts, it does not mention gas. Hydrocarbon is mentioned in the Act but experts say the substance of the law is focused on oil. They want the proposed gas master plan linked to the power system master plan. Currently, Tanzania uses gas to power its industries and also to generate electricity through its existing Songas pipeline, which is under pressure to meet increased gas demand.

The country has diverse energy sources including biomass, natural gas, hydropower, coal, geothermal, solar and wind power, much of which is untapped. Government policies are directed at petroleum product substitution by exploiting indigenous resources. In the upstream oil industry, oil and gas exploration and production is being encouraged.

The hydrocarbon industry is regulated by the Ministry for Energy and Minerals, Tanzania, with its oil seeps, seismic and other data shows strong hydrocarbon potential in its upstream oil industry sector. Despite this potential, it is still classified as underexplored.