Page 6 - DMEA Week 24 2022

DMEA COMMENTARY DMEA

Tanzania LNG’s potential pitfalls

The initial HGA represents a triumph for Tanzania’s president, who has been working

hard to revive the stalled $30bn deal, but the project’s timeline may be overly ambitious

AFRICA SINCE she assumed office in March of last year, gas production in 2025 – and that the LNG plant
Tanzania’s President Samia Suluhu Hassan has can begin operating in the same year. If so, this is
said repeatedly that she views the oft-delayed a more ambitious timeline than previously dis-
WHAT: Tanzania LNG scheme as one of her highest cussed, as Tanzanian authorities have said in the
Tanzania’s government economic priorities. past that they believed construction work on the
has signed an initial host In doing so, she has set herself apart from her LNG plant might start in 2023, in time for pro-
government agreement predecessor John Magufuli, who devoted much duction to begin in 2028.
(HGA) with Equinor and more of his attention to the East African Crude
Shell. Oil Pipeline (EACOP), the midstream compo- Ambitious schedule
nent of the Lake Albert Development Project But according to David Thomson, vice president
WHY: (LADP). EACOP will pump more than 200,000 for sub-Saharan Africa research at Welligence
The document supposedly barrels per day (bpd) of oil from the Kingfisher Energy Analytics, all of these target dates could
paves the way for the and Tilenga fields along a 1,443-km route from be overly optimistic.
parties to strike a deal western Uganda to the Tanzanian port of Tanga. Thomson emphasised that Tanzania did have
by year-end and begin Suluhu is a firm supporter of EACOP, which the resource base needed to support the pro-
production a few years is expected to account for about half of LADP’s posed LNG plant, assuming that it is the same
later. $10bn budget. But she has also been working size as previously discussed – that is, equipped
for more than a year to restart negotiations on with two production trains, each with a capacity
WHAT NEXT: the $30bn Tanzania LNG project and keep them of 5mn tonnes per year (tpy). “Each 1mn tpy of
The schedule for going – unlike Magufuli, who did little to sort out LNG production requires approximately 1.1 tril-
implementation of the commercial disputes that arose between the lion cubic feet (31.15 cubic metres) of feed gas to
the deal will be hard government and the international oil companies operate for 20 years,” he explained to NewsBase.
to keep in light of (IOCs) that were involved in the project. “Therefore Tanzania appears to have more than
decarbonisation Her efforts have now borne fruit. On June enough gas reserves for these two LNG trains.”
deadlines and 11, her government signed an initial Host Gov- He was referring to the fact that the three off-
competition from other ernment Agreement (HGA) on the project with shore licence areas that will provide gas to the
LNG suppliers. Equinor (Norway) and Shell (UK), the opera- plant – Block 2, assigned to Equinor, and Blocks
tors of the three offshore blocks that are slated 1 and 4, assigned to Shell – are known to con-
to supply feedstock to the future Tanzania LNG tain 35 trillion cubic feet (991bn cubic metres)
plant. In turn, this document paves the way for of gas. Additionally, he mentioned Tanzanian
additional negotiations toward a final HGA and Energy Minister January Makamba’s statement
the other agreements needed to secure a final on June 11 that the country’s total gas reserves
investment decision (FID) on the scheme. amounted to around 57 trillion cubic feet (1.614
Suluhu said after the signing ceremony that trillion cubic metres).
she expected Tanzania LNG to benefit the coun- Despite its ample resources, Thomson said,
try in many ways. This project is “very unique, as Tanzania is not necessarily in a good position to
it brings both capital and revenue,” she remarked. meet the deadlines it is looking to set. Even with
“Therefore, when completed, the project will demand on the rise following the EU’s decision
change the country’s economic outlook and to phase out Russian gas imports, the country
unlock the economic growth and capture ben- does not have the LNG experience or the infra-
efits from LNG exporting in the global market.” structure it needs to remain on schedule, he
She also indicated that she expected work on remarked. Under current circumstances, both
the scheme to move forward quickly now that 2025 and 2028 appear to be overly optimistic, he
this first step had been taken. “I long to see phase indicated.
two of the negotiations being timely wrapped up “It will be a major challenge for Tanzania to
[in December of this year], so that we pave the produce any LNG in the 2020s,” he told News-
way for the project’s implementation as planned Base. “Any project FID will require long-term
later in 2025,” she was quoted as saying by The (at least 15-year) LNG contracts with buyers to
Citizen. underpin its financing.”
The president appears to be saying that her Shell and Equinor could face similar chal-
administration expects work to proceed quickly lenges with respect to the upstream component
enough that Shell and Equinor can start offshore of the project, he noted. When asked whether

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