By:Hellenicshippingnews

Tanzania’s efforts to lure investors to its upstream oil and gas prospects have received lukewarm reception over the past four years, raising concerns even as peers in the region auction more blocks.

And as the country prepares to auction 26 offshore blocks in May, some energy experts are blaming snail pace progress on the $42 billion Liquefied Natural Gas (LNG) project for hindering new exploration ventures.

The Tanzanian project is to be developed by multinationals Shell PLC and Norway’s Equinor ASA as lead partners and participating interest from the Tanzania Petroleum Development Corporation (TPDC), the result of an MoU signed in January 2021.

The industry welcomed this development as a bold move by the then new Samia Suluhu Hassan presidency, aiming to kick start the stalled project and open up the country’s upstream sector for new investments.

At a recent investor briefing in India, Energy minister Doto Mashaka Biteko said parties to the LNG project are hammering out final tax incentives due June this year. However, the project’s implementation and host government agreements, are still pending.

Government officials speaking on condition of anonymity say the previously set FID date of 2025 is now out of reach, and the timelines have been moved to 2028, which pushes LNG production start to 2032, at the earliest – and this has had a ripple effect on future oil and gas exploration efforts.

At recent international conferences, Tanzania had been promoting its offshore oil and gas blocks in the Indian Ocean and Lake Tanganyika as holding high prospects. But investors have not responded to bid for the advertised exploration areas.

One reason, officials admit is rising pressure against fossil fuels.

Dr Hussein Ali Mwinyi, the President of Zanzibar, told an audience in Dar es Salaam that the primary bottleneck for development of the petroleum and industry in the east African region was funding while global activists intensify opposition to fossil fuel projects as credit agencies increasingly hesitant to support such initiatives.“The traditional financiers that Africa has relied on for decades are withdrawing their support particularly in Africa, citing climate change concerns as the primary reason,” said Mwinyi at the conference last week.“On the utilisation part, the need for implementing more cross-border oil and gas infrastructure cannot be overstated. Through this infrastructure, the region can efficiently harness the petroleum resources for the greater good of the Partner States.”During the 10th EAPCE in Kampala in May 2023, Tanzania’s Permanent Secretary in the Ministry of Energy Felchesmi Mramba pitched the same exploration areas, stating that they would be auctioned before the end of that year. That did not happen.

In January 2022, Tanzania’s national oil company TPDC hired UK law firm Baker Botts as transaction adviser for the government negotiation team in the LNG Project.

In June 2022, TPDC signed a framework agreement with Equinor and Shell to pave the way for the construction of the LNG export terminal.

This was done to reverse the effect on the industry that Tanzania’s fifth President John Pombe Magufuli created when he set out to introduce laws and renegotiate the fiscal terms with foreign companies operating in Tanzania’s extractives resources space.

The Magufuli changes were aimed at resource nationalisation as it saw taxes hiked and forced investors to commit to a degree of local ownership by listing on the Dar es Salaam Stock Exchange. The regime also set out to review production sharing agreements and host government agreements with gas investors.

Dr Mwinyi admitted that these projects can be bureaucratic, lengthy and cumbersome, deterring potential investors who may lack the patience or resources for protracted negotiations and approvals.“We should do more licensing rounds and participate in roadshows and conferences to aggressively promote investment in the petroleum upstream operations. Through more exploration, we will enhance oil and gas discoveries in the region to be one of the contributing players on the global stage,” said President Mwinyi.

In fact, Tanzania is not unique to these problems. East African countries have generally found it difficult to attract investors in the oil and gas sector due to the labour-intensive nature, poor funding as well as lack of political good will that such projects need.

Financing for energy ventures is often in hard currency, while energy services are paid for in local currencies, creating a currency mismatch in forex fluctuations, experts say.

Tanzania, Uganda and South Sudan and, lately, Kenya having all discovered large deposits of oil and gas, investment in these sectors is slow.

Kenya has been marketing 10 blocks in Lamu and Anza basins at the Coast. Tanzania and Uganda have also planned the East Africa Crude Oil Pipeline (EACOP) from Hoima in Lake Albert region, Uganda to the Tanzanian port city of Tanga as a landmark cross-border infrastructure project.

Dr Mabea cited the political risks, and unfavourable assessment reports from the Bretton Woods institutions (World Bank and the International Monetary Fund) as factors denying investment in the sector.“Getting these development partners, the lead time is very long. Because of underlying risks such as political risks and also what we are going through in Kenya, the borrowing capacity of a country is very low,” said Dr Mabea.

Tanzania’s reserves of 57.54 trillion cubic feet of natural gas that can be used for households, electricity generation, heating for industries and powering of vehicles, could be a boon for the country and region.

In May 2021, Kenya and Tanzania inked a $1.1 billion deal for a gas pipeline project between the coastal town of Mombasa and Dar es Salaam, around the same time Uganda and Tanzania agreed to undertake a feasibility study to develop a gas pipeline between the two countries.

Both Kenya and Uganda are off takers of Tanzania’s gas, but the slow progress of the LNG development could see the countries turn to other sources.

Ugandan power utility Uganda Electricity Generation Company Limited (UEGCL) has started converting its heavy fuel oil plants to gas-fired power plants to make electricity cheaper and also push the country’s energy transition to clean sources.

George Mutitweka, the UEGCL chief operations officer says the firm is looking at different options, including Uganda’s own upstream oil projects Tilenga and Kingfisher, the country’s planed refinery, Rwanda gas from Lake Kivu and Tanzania’s LNG as well as producers in the Gulf the potential sources.“LNG has a lower carbon footprint than HFO (Heavy Fuel Oil), but it will all come down to the least cost and available option to us,” he said.

Tanzania made the first onshore natural gas discovery at Songo Songo Island in 1974 followed by Mnazi Bay in 1982, Mkuranga in 2008, Ruvu in 2017, and Ruvuma in 2018, amounting to 10.41 trillion cubic feet of gas in place.

The country has since developed Songo Songo and Mnazi Bay gas fields, which are producing gas for power generation, industries, households and Compressed Natural Gas (CNG) for vehicles, since 2004 and 2006 respectively.

Currently, the government and international oil companies Shell and Equinor – as the lead investors while Ophir, Pavilion, and ExxonMobil are minor partners – are finalising negotiating the host government agreement for developing the discovered natural gas for domestic use and export.

In September last year, Omani energy conglomerate ARA Petroleum was awarded a 25-year license for the development of Tanzania’s 3.5 trillion cubic feet Ntorya gas field, the largest onshore project in the southern highlands of Tanzania.

Investments in renewable energy are capital-intensive and require specialised skills to manage. It is estimated that Africa needs between US$ 1 and US$2 trillion to meet the clean energy transition targets by 2030,” said Tanzanian Vice President, Dr Philip Mpango, at the conference.“In response, Tanzania has implemented policies and programmes to encourage investment in renewable energy, as manifested by the current status where renewable sources take the lead in the energy mix.”