Oil and gas: Now the hard work begins in EA

The UK market intelligence firm Business Monitor International says Tanzania, Angola and Mozambique have the highest prospects for oil and gas investments in Africa.

The managing director of Tanzania Petroleum Development Corporation, Mr Yona Killagane, spoke with The Citizen on Saturday on the way forward.

QUESTION: What is your take on the good news and revelation?

ANSWER: East Africa in general has been a hot spot for oil and gas exploration in the past three years.

The big gas discoveries--200 trillion cubic feet in Mozambique and 50.5 tcf in Tanzania plus the oil discoveries in Uganda and Kenya -- suggest that more resources are bound to be discovered.
Initially, the region was considered a frontier area with a high risk of loss for investors in oil and gas exploration. That risk has been significantly reduced.

The host countries have continued to tighten their fiscal regimes following the high interest being shown by companies. This has happened in all the East African countries.

The general economic principle to the investor--the lower the risk, the lower the returns that can be accorded--applies. This means the lower the risk, the higher the returns to the host country.

And what does it mean for the nascent oil and gas industry in the country and the anticipated gas economy?

Exploration activities are continuing. So far, a total of 42.5 tcf of gas has been discovered offshore and eight tcf onshore.

The next stage is to appraise the reserves and drill more wells for production. In the case of deep sea gas, studies continue on how to commercialise the gas that has been discovered by constructing an LNG plant.

Infrastructure development will play a significant role in how the gas is used.

Industries will be developed, including fertiliser and petro-chemical plants, to provide gas for power generation.

As for onshore gas, the new gas pipeline (Mtwara and Songo Songo to Dar) will be a major vehicle for transporting natural gas throughout the country. This will promote early initiatives in the gas economy.

The impact of the gas economy will be felt in the late 2020s since the development of offshore gas will take some time.

How much has been invested in the sector so far and which countries and companies are the main players?

The estimated investment by International Oil and Gas Companies operating in Tanzania is at $3.2 billion in offshore areas and $1.5 billion in onshore areas.

This works out to a total investment of $4.7 billion. The main players are BG (UK) and Statoil (Norway), who are operating in the deep sea where drilling a single well costs around $100 million.

What is Tanzania’s competitive edge and what should be done to make it more competitive?

Tanzania is strategically positioned to market its products to the Far East.

This can be considered one of Tanzania’s competitive edge. The political stability of the nation also gives our country an edge. Tanzania adheres to the rule of law and practises good governance principles whereas these practices are missing in other countries.

More transparency and accountability is also being pursued and that is why Tanzania is a member of the Extractive Industries Transparency Initiative (EITI).

Comment on issues of policy uncertainty and wanting regulation that have started putting off investors, as witnessed in the last bidding for gas blocs. There is also the issue of the LNG plant.

In the light of recent big gas discoveries in the deep sea, the government is developing appropriate policies and legal frameworks to guide future exploration, and exploitation of the resources.

The policy development process involves all stakeholders in the sector. There is, therefore, no uncertainty in the policies. It is not true that the policies have been putting off investors.

With regard to the Fourth bidding round, there has been a lot of interest from oil companies.

Five bids were received during the licensing round, which is the highest number of companies participating since 2000--when we started offering bids to international oil companies.

As for the LNG project, the international oil and gas companies--comprising BG Group, Statoil, ExxonMobil, Ophir Energy and Pavilion Energy--are considering a potential multi-billion dollar investment to develop Tanzania’s offshore natural gas resources.

The partners have started identifying a suitable onshore location for an LNG plant based on technical considerations.

There are also concerns that the legal framework is not in place and Tanzania’s incentives are too generous.

The legal framework for the oil and gas industry is in place. This framework comprises the 1997 Constitution, the Energy Policy 2003, the Natural Gas Policy 2013, the Petroleum (Exploration & Production) Act of 1980 and the Petroleum Act of 2008.

These legal frameworks are being reviewed to take into account the rapid developments in the gas sub-sector. Regulations are required for a range of operations.