Tanzania Gas Infrastructure: Plans for LNG Facility?
Wednesday, 27 March 2013
Following the recent offshore ‘high impact’ gas finds, operators are making plans to set up a liquefied natural gas (LNG) facility.

Norway’s Statoil recently announced that it had discovered 4-6 trillion cubic feet (tcf) in Tangawizi-1 well in Block 2. The discovery pushes up the block’s resource estimate to 17tcf and also above Statoil’s set threshold for commercial development. The company had targeted 8-10tcf to consider an LNG facility viable, but the new find has pushed recoverable reserves in the area to 10-13tcf. This has driven preliminary partnership discussions with BG Group who operate the neighbouring Block 1. According to Bloomberg, BG ‘hasn’t got a specific figure for Block 1’, but a stem test on its Jodari field in Block 1 showed ‘better than expected reservoir qualities.’

The Financial Times reports that a two-train LNG facility with a tentative cost of USD14bn is being considered. Plans are expected to be presented to the authorities in the second quarter of 2013. The two companies are reportedly in consultation over the site for the LNG plant, with this forming part of the recommendations expected in Q2.

Statoil is the operator of Block 2 with a 65% share, while Exxon Mobil Corp holds 35%. BG operates Block 1 with 60%, while Ophir Energy Plc holds 40%. Their joint operation could become the first in the country that so far has recoverable natural gas estimates of 33tcf.

While an exact timeline to build the LNG facility is not yet available, some analysts had estimated a period of seven years for the country whose LNG infrastructure would have to be built from scratch. This would give the country enough time to set up proper institutions and legislation. The current laws are under review, but the process is slow (see our analysis here). However, this could change if a solid development plan were submitted by BG and Statoil.

East Africa is a relative newcomer to the oil and gas industry and, with increasingly confirmed viability of reserves, disputes between exploration firms and governments have emerged. Exploration firms will demand more clarity on laws that affect their operations before they will make significant investments. Tanzania has recently begun changing its laws to increase revenues from its natural resources. The country’s taxation regime, much like those of the regional peers, also leaves a lot to be desired.

Recent gas-related protests in Mtwara (see our analysis here) also show that even a relatively calm country as Tanzania is vulnerable to disputes between local communities, government and exploration firms. However, a potentially explosive situation was averted when the country and its semi-autonomous island of Zanzibar reached an agreement that ended a conflict which had effectively halted any exploration works on waters that the island lays claim to. This has freed companies like Shell which has four blocks in the area to plan and commence activities.

A little further south, Italy’s ENI and US American Anadarko signed a Heads of Agreement a few weeks ago to pursue a coordinated development of common natural gas reservoirs offshore Mozambique. They plan to construct common onshore LNG liquefaction facilities while conducting separate, but coordinated offshore activities.

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