Tanzanian breakthrough [NGW Magazine]

Things are picking up for Tanzania’s $30bn LNG export plans after hardline president John Magufuli decided early in December to break the deadlock with project developers. They agreed to resume their preliminary talks. 

Two partnerships of international oil companies started negotiating with Tanzania in 2014 for a host government agreement but they made no headway, largely because of a tough local legal framework and Tanzania's demands for a bigger proportion of revenue. Meanwhile talks in Mozambique to the south were more productive and faster as the government saw the need for wealth-creation in the poverty-stricken nation.

In Tanzania, Anglo-Dutch major Shell is leading one partnership that includes Singapore's Pavilion and UK firm Ophir Energy to develop about 16 trillion ft³ offshore reserves in the east African country. Another, led by Norway's Equinor and US major ExxonMobil, discovered 23 trillion ft³ of gas, also offshore. The two partnerships plan jointly to set up a liquefaction and export facility at Lindi, on Tanzania's southeast coast. ExxonMobil is also pursuing a larger project to the south, in Mozambique (see box).

Tanzania’s president, John Magufuli, whose hardline style and tough empowerment stance had been blamed for the slow progress, appeared to change tack in December when he gave a go-ahead to the Tanzania Petroleum Development Corporation (TPDC), the national oil company and lead negotiator, to resume talks with the five international oil companies 

Equinor and Shell welcomed the move. "We note that president Magufuli has asked his government to proceed with negotiations to set out the commercial and fiscal framework for the LNG project in Tanzania," said an Equinor spokesperson December 5. "We see this as a positive signal and we look forward to engaging with the Tanzanian authorities and agree on a host government agreement for this important project.” Costs and timings will depend on the success of those talks, however, Equinor said, adding: “If we could start the development of these resources, this would create an immediate benefit to Tanzania in the form of jobs and activities. 

Earlier, on October 4, Magufuli had, according to a report in The Citizen, a Tanzania daily, sought the support of the new Norwegian ambassador in order to try to speed up the billion-dollar project.
"The president has asked the Norwegian ambassador to intervene and make sure the LNG plant becomes a reality," the minister for foreign affairs and east African co-operation Augustine Mahiga told the paper after Elisabeth Jacobsen, Norway's new ambassador, had presented her credentials to Magufuli

A Shell spokesperson, in a December 6 statement, said the company was keen to advance the negotiations, but it all depended on the direction from Magufuli's government. "It is our understanding that the objective of all partners involved in the Tanzania LNG project is to have a single, joint project," said Shell. "We share the view that such a joint integrated project will result in a globally competitive LNG project, which will yield far greater benefits for the host country than a small project can. We are awaiting the decision from the Tanzanian government on the next steps and are keen to make progress. We consider the government is best placed to set the right way to deliver the project and look forward to discussing that further." 

In total, Tanzania has about 57 trillion ft³ of recoverable gas, which could theoretically produce close to 60mn mt/yr of LNG for 20 years. The bulk of the gas being extracted, mostly from offshore fields in the south of the country, is used to generate 607 MW of the country's 1.367 GW electricity generation capacity. This has helped the economy save some 23 Tanzanian shillings ($10bn) in 13 years; money that could have been spent on diesel and heavy fuel oil imports, according to a statement issued by TPDC in March 2018.

When fully operational, the LNG export facility at Lindi will be the biggest gas-related investment in Tanzania and expand the socio-economic benefits accruing to the country. TPDC, in January 2016,     secured the title deed for 2,071 hectares of land where the plant will be built. The NOC is seeking a advisory firm to assist it in the contract negotiations with Equinor and Exxon. The prospective investors, who have been alarmed by some government actions over the years, hope that Magufuli's December remarks represent an enduring new direction.

In July 2017 they were set back by the enactment of three pieces of legislation that allow the government to force mining and energy companies to renegotiate their contracts. Five months later, the speaker of Tanzania's parliament complained that the country was not realising enough economic benefits from natural gas.  

To establish why that was the case, he launched an investigation into the sector in January 2018 and the committee presented its report in June after studying 11 production-sharing agreements. It found that the contracts were structured in a way that enabled private companies to evade taxes, levies and royalties. As a result, the country had allegedly lost some $68mn from two of the 11 contracts.

Mozambique moves faster 

While the Lindi project is lumbering on, neighbouring Mozambique, with 180 trillion ft³ of proven reserves, is moving ahead more quickly. Italian Eni sanctioned the $4.7bn Coral South floating LNG unit in June 2017 and construction of the hull for the platform, which will be in Area 4 to the north of the country near Tanzania started in September 2018. 

Eni is the operator with a 25% stake in the project; partners are ExxonMobil (25%), Chinese National Petroleum Corp (20%) state Empresa Nacional de Hidrocarbonetos (10%), Kogas (10%) and Portuguese Galp Energia (10%). LNG production is expected in 2022. 

Another investor in Mozambique is the US independent, Anadarko, which with its partners is sitting on some 75 trillion ft³ of reserves in Area 1; it expects to take final investment decision in the first half of 2019. Mozambique's president approved December 14 the country's 2019 budget which has a provision for loan guarantees of $2.48bn, the bulk of which will cover the government’s Area 1 project commitment. 

The guarantee is expected to encourage the Anadarko partnership to take FID early 2019 as scheduled. The project aims to secure 9mn-11mn mt/yr of long-term sales agreements, with some output withheld for short-term trading. 

That project has also incorporated a Singaporean-based company which will be the seller counter-party on all contracts and the gas will be sold jointly, not on an equity basis. 

And in the dying days of 2018, the co-venture participants in the ExxonMobil/Eni-led Rovuma LNG project, also based on Area 4 gas, said they had secured LNG offtake commitments from affiliated buyer entities of their partners, meaning a final investment decision would not be far off.

ExxonMobil said the agreements were "a key milestone enabling the participants to rapidly move toward FID in 2019 on the first phase of the Rovuma LNG project."

Those commitments are subject to the conclusion of fully-termed agreements, which will be finalised and initialled in the next weeks, and government approval.

“The Rovuma LNG marketing team has worked at an accelerated pace to reach this important milestone, a tremendous achievement made possible by the strength of the Area 4 co-venture parties and the support of the government of Mozambique,” said the president of ExxonMobil Gas and Power Marketing Company, Peter Clarke.

Eni chief gas and LNG marketing and power officer Massimo Mantovani said: “These commitments are an important step forward for the Rovuma LNG project and provide a solid foundation for securing project financing. This achievement highlights the strength of our partnership and commitment to developing Mozambique’s natural resources.”

ExxonMobil will lead construction and operation of the plant, expected to take the form of two trains each of 7.6mn mt/yr of LNG in the first phase; and Eni will lead construction and operation of upstream facilities.