Saturday, June 19, 2021
HomeEnergyTanzania’s LNG hopes on a knife-edge

Tanzania’s LNG hopes on a knife-edge

INTERNATIONAL oil companies (IOCs) sitting on large gas discoveries offshore Tanzania say they are keen to resume drawn out and currently halted talks over the development of liquefied natural gas (LNG) export projects, based on large reserves in south of the country. But, even if talks restart soon, the country will still face a struggle to start exports within the next decade given an increasingly competitive global LNG market.

Negotiations were paused by the government in mid-2019 to allow a review of Tanzania’s production sharing agreement (PSA) framework, the outcome of which has yet to be announced.

Tanzania’s overall recoverable gas reserves are estimated at more than 57tn ft³.  These lie mainly in the country’s portion of the offshore Rovuma Basin, which it shares with southern neighbour Mozambique, where three LNG projects are already being developed utilising overall gas reserves estimated to be more than three times that size of Tanzania’s.

Norway’s Equinor, as operator, and partner ExxonMobil hold the licence for Tanzania’s Block 2, which could hold more than 20tn ft³ of gas in place. Shell operates Blocks 1 and 4 in partnership with Ophir Energy, the UK independent now owned by Indonesia’s Medco, and Singapore-based Pavilion Energy. Those two blocks have estimated reserves of around 16tn ft³ of recoverable gas.

The two groups have been in separate development talks with President John Magufuli’s government for several years, even if the most likely outcome may well be, at least in the first instance, collaboration on a single plant. But a Host Government Agreement (HGA) needed to take any development further has proved elusive.

Disagreements over terms have stymied progress. Magufuli remains keen to maximise government revenues and domestic offtake, while IOCs have been seeking terms to make Tanzanian LNG more competitive with rival supply and to put the project’s finances on a stable footing.

Talks resumption 

The government’s ambitious target to begin project work within two years and have LNG production well before the end of the decade looks increasingly like a pipe dream. And the PSA review is not just an obstacle to resuming talks and unblocking progress on LNG projects, it also creates further uncertainty over the terms of future investment in offshore Tanzanian E&P.

IOCs are still, though, making positive noises, while stressing the need for terms that would make an export facility a worthwhile investment. ‘Shell continues to engage with the Tanzanian government to progress the Tanzania LNG project. HGA negotiations with the government were paused in August 2019 to allow them to finalise the PSA review process. We look forward to resuming negotiations, which are vital in ensuring appropriate commercial and legal foundations for a globally competitive LNG plant,’ the major tells Petroleum Economist.

Equinor stresses that it is in the mutual interest of both Tanzania and the companies in its group that the gas resources are developed but cautions that FID will likely to take some time to reach. “Our priority is getting in place a financial framework through the HGA. Once an HGA is in place it will take several years to mature the project to a final investment decision, followed by construction start,” says the Norwegian firm.

Competitive market

With every month that goes by without an agreement, the rationale for a pre-2030 start to LNG exports weakens from the IOCs’ perspective, according to LNG market observers. The jump in global LNG supply from 325mn t/yr in 2018 to 390mn t/yr, according to figures from consultancy Wood Mackenzie, while demand growth stutters and prices plunge is an immediate reminder of the risks of an abundantly supplied market to new project developers.




Please enter your comment!
Please enter your name here

- Advertisment -

Most Popular

Recent Comments

Joseph on