Tanzanian Gas Market Post-2018 Uncharted
Tanzania's government earlier this May said that it intends to build a pipeline that will flow gas from Tanzania to Uganda but declined to elaborate on when the planned pipe would be built and how large it would be. Its statement of intent followed a definitive decision by the Ugandan government to build a pipeline that will flow oil in the opposite direction: from Uganda to the northern Tanzanian coast.
NGA asked Wentworth Resources' managing director Geoff Bury, during the company's 1Q 2016 analysts call on May 12, if he had insights into the planned Tanzania-to-Uganda gas pipeline and how he sees the landscape for independent gas producers in Tanzania after 2018.
"We have no more clarity on the Uganda gas pipeline than you do, than what has been disclosed into the market," he replied: "It’s our understanding that it is only at the planning stage. So we don’t know when a final investment decision [FID] will be achieved on that."
Tanzania has three main onshore producers – Canada's Orca Exploration; Maurel & Prom with Wentworth Resources; and Aminex – while Dubai-based Dodsal has announced a large gas find. But their reserves are dwarfed by the roughly 39 trillion ft3 (1.1 trn m3) offshore gas resources held by Shell/Ophir and Statoil/Exxon, representing over two-thirds of the US Energy Administration's gross gas estimate for Tanzania of over 57 trillion ft3.
So NGA sought Bury's on-the-ground viewpoint of whether gas developments in Tanzania would be phased, according to demand from existing and prospective power plants in Tanzania and Uganda – and if smaller onshore producers risked getting swamped in volume and price terms by a potential overspill into the domestic market of gas from the Shell and Statoil LNG projects. If they take FID, production may start in the first half of the 2020s.
"With respect to the offshore gas that you alluded to, the LNG projects – to the best of our knowledge – have not reached FID yet," replied Bury: "So it’s a number of years out before we would anticipate seeing any of that gas coming into the domestic market."
Unclear, but upbeat about future demand
"As far as demand goes, beyond 2018 there are plans in place to continue to expand the power generation and distribution system in Tanzania. Only a small portion of the population currently has power generation available to them. So we see the market continue to grow substantially beyond 2018. And we expect to continue to be one of the suppliers of that market," Bury added.
"The final point was, you referred to the Dodsal discovery," noted Bury: "We don’t have any clarity on that, on the timing of when that may come into the domestic market. This is just an evolving situation. The demand is growing and the supply, of course, will also grow over time."
Bury was also asked by equity analyst Colin Smith of UK firm Panmure Gordon how sure Wentworth could be of how the Tanzanian government will allocate the market through to 2018, particularly between the Mnazi Bay field – producing since August 2015, in which Maurel & Prom and Wentworth are partners – and the rival Aminex-operated Kiliwani North field that started up in April 2016.
Bury's reply, detailed in NGA on May 12, was that Mnazi Bay contracted volumes are up to 80mn ft3/d at present, stepping up to 130mn ft3/d over time: "So we would fully expect that the first 130mn ft3/d of demand we will be supplying. We don’t have any visibility on what demand the other potential suppliers in the country will be supplying. But we do have a contract in place for up to 130mn ft3/d."
Asked again if the government could use its discretion to take from Kiliwani North, rather mainly from Mnazi Bay, Bury replied: "The take-or-pay provisions become fully in place once COD [commercial delivery] has occurred, which we will expect that will happen in the coming months. So it’s immediate from that point in time. That’s just a legal condition. The practical considerations are that we [Mnazi Bay] are the only one supplying gas through that [new] pipeline at present, and we have indications from the government that they will be taking all of our gas up to 130mn ft3/d. We’re not concerned about this." He also reminded analysts that the Mnazi Bay supply contract and pricing extends out to October 2031.
Mark Smedley