Government prepares new terms for talks on LNG project

Dar es Salaam. The government of Tanzania is now preparing new terms after changing modality of negotiations for the planned liquefied natural gas (LNG) plant in Lindi.

Host Government Agreement – the pact between the government of Tanzania and international oil companies (IOCs) - governs the rights and obligations of both parties with respect to the development, construction, and operation of the $30 billion natural gas project.

These discussions in which the IOCs negotiated as one team started in 2017 and were hoped to conclude in 2018.

However, up to August 2017, they were yet to be finalised and Tanzania Petroleum Development Corporation (TPDC) reported that the delays were partly due to differences on the two sides which could not agree on modalities on who to do what.

Following the delays, Equinor – one of the IOCs - requested to go separately and President John Magufuli accepted the appeal asking his government to proceed with negotiations to set out the commercial and fiscal framework for the LNG project in Tanzania.

Equinor will now proceed with the negotiations with their partner ExxonMobil.

The commissioner for Petroleum, Mr Innocent Luoga, told BusinessWeek that the government and IOCs were now preparing for individual negotiations.

“We are preparing a negotiation term sheet because it cannot work with this arrangement,’ he said.

When the individual negotiations kick off, implementation will also be done individually but the gas will collectively be put in one government facility.

Mr Luoga said that the IOCs had requested the government for separate negotiations after the discussions were taking too long to reach consensus.“The government took on board the propsal and worked on it before allowing the companies to negotiate on the Host Government Agreement (HGA) for the planned Tanzanian LNG plant separately,” he said. He stressed that the government will conduct individual negotiations with Equinor and its partners as well as Shell with its partners.

He noted that the implementation of the LNG will also be done individually before all the companies come together collectively to put the gas in one LNG government facility.

Tanzania has a natural gas resource estimated at 57 trillion cubic feet (tcf) onshore and deep sea.

Equinor spokesperson Erik Haaland said in an email interview that Equinor, on behalf of the partners in block 2, has agreed with the government to start the negotiations.

“We are currently in the preparatory phase working jointly with the government to plan the negotiations process.” The company also said in an advert last week that it was looking for interested law firms which will act as project legal counsel in connection with the Host Government Negotiations (HGA) for block 2 offshore Tanzania in developing the gas and LNG project in Tanzania.

To supplement that, Mr Haaland said that the invitation to express interest as advertised on 13 February 2019 is the start of a process for Equinor to engage a Tanzanian law firm that can provide legal advice and guidance during the negotiations.

On its side, Shell Tanzania representative who asked for anonymity, said that Shell being one of the “most experienced global LNG player” believes that a joint development will provide far more benefits to all parties involved, including a significantly larger government revenue stream from the project.

He said economies of scale would yield more value for all parties in the LNG project.

“We are committed to continue to work with the government to jointly develop the best possible project for all partners,” he said.

Reports show that IOCs involved in the LNG project include Equinor, Shell, Ophir, Pavilion and Exxon Mobil. LNG is natural gas (predominantly methane, with some mixture of ethane) that has been cooled down to liquid form for ease and safety of non-pressurised storage or transport.