Tanzania Primed To Become Regional Gas Hub

crude-oil_3

VENTURES AFRICA – The latest gas discovery in Tanzania, made by Norwegian firm Statoil, has reignited optimism that the country can become a major gas provider, detracting attention from lingering fears that the country will not follow Kenya and Uganda in discovering lucrative oil fields.

The latest gas discovery, following several similar finds, raises the prospect of Tanzania establishing itself as a major gas supplier even if doubts remain about oil in the area.

Some of the largest international oil and gas companies continue to invest in the country, no doubt encouraged by the many discoveries of gas and the fact that both Kenya and Uganda have struck oil. East Africa in general has become the focus of attention for many companies seeking new outlets for the depleting reserves of oil and gas. Statoil’s second discovery takes its proven reserves in Tanzanian waters to 4 trillion cubic feet, following discoveries of around 6 trillion cubic feet by British-based BG Group and Ophir Energy. These findings make an export infrastructure commercially viable, and the combination of reserves in Tanzania and Mozambique would serve to make the region a global gas hub, providing the Tanzanian government with the silver lining to the lingering cloud of having been unable to hit oil.

“The gas encounter increases the likelihood of a Tanzanian gas development project, either as a combined LNG project … or as a separate project that could prompt the start of an east African gas hub alongside Mozambique,” said Marné Beukes, energy analyst at IHS Global Insight. Most of the finds have been in the offshore Rovuma Basin, shared between Tanzania and Mozambique, which has found even greater levels of oil than Tanzania.

Statoil’s Vice President for Exploration Tim Dodson said that “the results so far mark an important step towards a possible natural gas development in Tanzania”, while gas analysts at Wood Mackenzie said that there was now a window for significant expansion in exports from the region between 2020 and 2030. With global demand for gas growing, driven by the expanding need for gas in the Asian power-generation sector, the prospect of East Africa increasing its supply to the global market is a potentially lucrative one.

The positive news from the gas explorations will ease the pain of the failures in oil drilling in Tanzania, which were particularly harmful to those engaged. Aminex, the company jointly charged with the drilling along with Solo Oil, saw private investors flee after the disappointing results were announced. The firm was forced to admit that initially encouraging readings had been misleading and that deeper exploration had not yielded the reservoir hoped for. Its share price dropped 25 percent upon the news. Crude deposits found in Uganda in 2006 and Kenya this year had raised expectations that Tanzania might offer similar opportunities, yet this has not been the case thus far.

Gas could yet prove a lucrative alternative for Tanzania. “This discovery could potentially be a catalyst for large scale natural gas developments in Tanzania,” said Yona Killaghane, Managing Director of the Tanzania Petroleum Development Corporation (TPDC) upon Statoil’s first discovery, which was 55 percent more than the driller had expected. The country is already using some of its gas to produce electricity, while it supplies gas to 37 institutions and industries. This is now likely to be expanded, though this is not without its challenges. Maritime piracy, a potentially threatening regulatory environment and an uncertain international gas market could all pose long-term problems for the industry.

Oil exploration, meanwhile, will continue. UK firm Ophir Energy has closed a $240 million fundraising campaign at the London Stock Exchange, with the money destined for exploration activities in Tanzania as well as Kenya and Gabon. Tanzania is expected to receive around $7 billion from Ophir. The country has also signed production sharing agreements with Petrobas, Heritage Rukwa and Motherlands Industries to drill for oil. Energy and Minerals Minister William Ngeleja said: “In case of discovery, the agreements offer a win-win situation for all parties,” said Energy and Minerals Minister William Ngeleja. In spite of the lack of exploration success in Tanzania so far, companies and the government clearly still feel the country has the potential to follow in the footsteps of Uganda and Kenya.

“Although oil itself hasn’t been discovered in Tanzania, there are large reserves of natural gas, and that’s what is driving the interest in the country,” said Patrick Mair, an analyst for sub-Saharan Africa at the risk assessment group Control Risks. “East Africa has really taken off over the last few years.”