Tanzania ready to reap big from its natural gas deposits

TANZANIA is taxiing and ready to take advantage of the global market for natural gas, which is ripe. Demand for this natural resource is increasingly hitting the ceiling across the world.

This makes the much awaited signing of agreement between the government and major oil investors this month timely and worth it. Recently, the government said it envisaged signing the key 40 billion US dollars agreement for Liquefied Natural Gas (LNG) project with Equinor ASA and Shell Plc to pave the way for exports after completing the fiscal package discussions.

Others in the project are ExxonMobil, and Pavilion Energy.

“This is commendable and good for the economy, not only on the FDI (Foreign Direct Investment) and employment creation part, but also as a sustainable source of foreign exchange,” Alpha Capital Head of Research and Financial Analytics, Imani Muhingo told the ‘Daily News’ recently. Mr Muhingo said the completion of the discussion and signing of the deal is timely, adding that the “market is ripe”, especially now, when Europe hastens to untangle from Russian energy dependence.

The project was delayed by years of prolonged negotiations but gained urgency as European countries look for LNG projects that can be longterm replacements for energy supplies from Russia.

The Minister for Energy January Makamba was quoted recently saying that the accords will include a final Host Government Agreement (HGA), setting out the project terms, as well as the project law and benefit-sharing agreement.

A final investment decision could be reached in January 2025, allowing exports to start before 2030, Mr Makamba said. The country’s natural gas reserves are estimated at 57 trillion cubic feet with a total annual production of 110 billion cubic feet from three fields in Songo Songo, Mnazi Bay, and Kiliwani North.

Throughout history and for the past 61 years, the country has earned trillions of shillings from its natural gas deposits following several discoveries that occurred during post-colonial administration, the government said. The latest statistics indicate that between 2004 and June 2020, the use of natural gas from Mnazi bay and Songo Songo enabled the government to save 38tri/- that would have been spent on procuring diesel to be used in power generation.

Permanent Secretary of the Energy Ministry, Eng Felchesmi Mramba, stated this on behalf of the minister for the portfolio, January Makamba.

He made the statement last year when highlighting massive achievements that the country has attained in the oil and gas sector compared to 60 years ago when the country attained its independence. He said Tanzania has made great strides in the sector including discoveries of natural gas, and introduction of different systems to ease service delivery in the oil and gas sector.

According to him, since independence, the government has been implementing a number of initiatives aimed at utilising the oil and gas sector, adding positive contributions to the national economy.

“Some of the initiatives that have been done so far include discovery of natural gas in Songo Songo in 1974, Mnazi Bay (1982), Mkuranga (2007), Kiliwani North (2008) and the deep sea (2010),” he said.

Expounding further, he said available statistics shows that a total of 57.54 trillion cubic feet of natural gas have so far been discovered offshore and onshore paving a way for introduction of natural gas in production of energy for industrial, domestic use as well as in vehicles.

Moreover, by October last year, a total of 52 factories in Dar es Salaam, Coast and Mtwara region were already connected to natural gas whereas two Compressed Natural Gas (CNG), vehicle filling stations in Dar es Salaam and Mtwara.

The available statistics show that a total of 1400 vehicles countrywide are using the natural gas system as the government establishes five more CNG filling stations in Dar es Salaam City. The plants are set to be completed by March 2023.

“To a large extent, the use of natural gas has helped in reducing dependency in power from the traditional source of Hydropower plants whereas over 60 per cent of electricity being produced in Tanzania is from natural gas,” he said.

Eng Mramba said between 2004 and June 2020, the use of natural gas from Mnazi bay and Songo Songo enabled the government to save 38tri/- that would have been spent on procuring diesel to be used in power generation.

He said further that by March last year, revenue from natural gas contributed a total of 208bn/- to the Oil and Gas fund from the financial year 2016/17 after completion of the construction of the Mtwara-Songo Songo-Dar es Salaam natural gas pipeline.

Just recently, the government through Tanzania Petroleum Development Corporation (TPDC) and ARA Petroleum Tanzania Limited of Oman signed a gas addendum for the Ruvuma-Mtwara Production Sharing Agreement (PSA).

The signed pact will enable development of the Ntorya gas field, whereby TPDC in collaboration with ARA Petroleum are planning to undertake various extraction activities, including drilling of production wells and construction of preprocessing units.

Also, there will be a construction of infrastructures for gas production and transportation, whereby a 30km gas pipeline will be constructed from Ntorya gas field to Madimba gas processing plant.

Speaking during the signing ceremony, Minister Makamba said completion of the project will increase the production of natural gas in the country.

He said currently gas production in the country is from Songosongo and Mnazi Bay gas fields that started production in 2004 and 2006 respectively.

“The two fields are currently producing at a capacity of 230 million standard cubic feet (mmscf) per day. Therefore, the development of the Ntorya gas field is expected to increase the daily gas production to 290 mmscf per day,” he said.

According to him, the successful implementation of this project has many advantages to Tanzania, including collection of 12.5 percent royalty, profit share, 30 per cent corporate income tax, 30 per cent additional Profit Tax, withholding taxes, city service levy as well as short and long term, direct and indirect employment for Tanzanians.

Commenting, Dr Hildebrand Shayo, an economistcum-investment banker, said natural gas exports will have additional macroeconomic benefits, including the balance of payments and foreign exchange earnings that when efficiently used and allocated, will help the government meet the public needs of the voters.

“Unquestionably,” Dr Shayo said, “it is predictable that prospective exporters like Tanzania will help, rather than hurt its economy”.

Also, he said, there is an additional benefit to LNG exports that is unquantifiable: Its impact on geopolitics. “The additional volumes of the country’s LNG will be beneficial to the global gas market, potentially helping Tanzania allies and development partners that are dependent on natural gas for energy,” Dr Shayo said.

Also, the 61th anniversary of Tanzania has seen an establishment of the Petroleum Upstream Regulatory Authority (PURA) that has played a great role in promoting local content in Production Sharing Agreement (PSA), audit.

“The establishment of PURA and PSA audit has saved 35.91bn/-,” Eng Mramba said Adding; “Apart from PURA, the government also established the Energy and Water Energy Regulatory Authority (EWURA) that is responsible for technical and economic regulation of the electricity, petroleum, natural gas and water sectors in the country”.

The authority is also mandated to put indicative and cap prices for petroleum products at wholesale and retail business. Another milestone achievement includes the establishment of the East African Crude Oil Pipeline (EACOP) for which a 1,441km long pipe will be built from Kabale in Uganda to Chongoleani, Tanga Region in Tanzania.

The project will cost 3.55 billion Us Dollars for which the two governments have already signed Host Government Agreement (HGA) as well as the Shareholders’ Agreement (SHA).