Tanzania Plans Pre-Feed on LNG Project

Tanzania plans to spend $2.6mn (6bn Tanzania shillings) in the 2018/19 financial year, ending next March, on conducting a pre-front end engineering design (pre-FEED) for a liquefied natural gas (LNG) plant and compensating 450 project-affected people, according to national budget plans released last week.

Five international gas companies are working on building a $30bn onshore liquefaction and export terminal at Lindi on Tanzania's south coast near an offshore zone where 57 trillion cubic feet of recoverable gas has been found, mostly offshore. A Shell-led partnership including Singapore's Pavilion and UK firm Ophir Energy has some 16 trillion ft³ of offshore reserves while another, led by Norway's Equinor (previously Statoil) and US supermajor ExxonMobil, have found another 23 trillion ft³ offshore. Progress on developing both has been slow since negotiations started in 2014 partly because of government's insistance on high revenue and its tough legal framework. 

Presenting the budget in parliament on May 24, energy minister Medard Kalemani said: "So far the evaluation of the project and selection of concept on production and transportation of gas from the deep sea to the mainland have been completed. We are now continuing with discussions on the Host Government Agreement (HGA). The actual project will start after completion of the discussions."

This follows the placement of an advertisement on April 12, by the Tanzania Petroleum Development Corporation (TPDC), the government's lead agency in the negotiations with the gas firms, for a transaction advisor for the giant onshore project. However London-based consultancy BMI forecasts that neither the Shell nor Equinor developments are likely to start exporting before 2027.

Days after the LNG tender closed, TPDC acting managing director Kapuulya Musomba told the local media on May 7 that 64 Tanzanian and foreign companies had responded to it.

In parliament on May 24, legislators voiced their unhappiness over the limited progress on the LNG project with the chairman of the parliamentary committee on energy and minerals Dunstan Kitandula telling Kalemani to speed negotiations up. This however may fall on deaf ears, as project developers have a range of alternative projects worldwide so, unless Tanzania's fiscal framework looks stable and competitive, both projects may be parked for now, and any attempts to expropriate assets could be contested through international arbitration.

In January 2016 TPDC secured the title deed for some 2,071 hectares of a former sisal farm at Likong'o where the giant liquefaction and export terminal will be located, which both Shell and Equinor projects are expected to use; an additional 17,000 hectares of land around the site has been set aside for an industrial park.