Tanzania's gas and LNG: Let's seize the opportunity together

What you need to know:

Last year marked a tectonic shift in the energy sector with significant headwinds and shocks that forced many countries and companies to re-evaluate their strategic priorities and to think critically about the future of the energy sector. 

A huge opportunity for Tanzania to benefit from its rich natural gas resources is with- in its grasp.

Creating thousands of jobs and enabling thriving large scale and small scale businesses, having its own reliable supply of natural gas to feed power stations, unlocking economic growth in the wider industrial sector with gas as feedstock for production of fertiliser, fuel for the transport sector, fuel for smelting operations and many other industrial applications are potential benefits to the country.

Sale of liquefied natural gas (LNG) in the international mar- kets, taxes, royalties, and dividends will bring large revenues to Tanzania through Tanzania Petroleum Development Corporation (TPDC) and the Government which could be used to contribute to the country’s economic development and social services including building schools, hospitals and roads.

Tanzania’s liquefied natural gas in inter- national markets could be worth Sh10 trillion a year, based on today’s market prices.

Equinor and Shell join forces

Last year marked a tectonic shift in the energy sector with significant headwinds and shocks that forced many countries and companies to re-evaluate their strategic priorities and to think critically about the future of the energy sector.  It was a difficult period for the energy sector and challenges remain.

However, despite the pressure on oil and gas companies worldwide, 2020 was also a year of resilience.

Being able to adapt to a constantly changing environment remains a distinct advantage for major international energy companies like Equinor and Shell, both operators of large gas discoveries off the country’s coast.

Shell and Equinor recognise the challenges brought about by cur- rent global market dynamics and they strongly believe a joint LNG project is the correct response.

A swift transition to a collaborative approach will create positive synergies and economies of scale while significantly saving costs and time, which is important for all parties.

Collaboration will not only bring the best outcome for Tanzania and for the project but will also make the project more competitive in the global marketplace, produce and process vast amounts of natural gas to power Tanzania’s industrialisation plan, support the country’s ambitions to supply gas to the region, and reduce dependence on imported oil.

Hence the two companies, in recognition of the benefits of working together, officially decided to join forces in an attempt to play their part in making a reality of the Tanzania Gas and LNG project. Shell and Equinor signed a Memorandum of Understanding (MoU) in January 2021 for collaboration on the liquefaction project in Lindi.

It’s crucial for the project that all par- ties play their part in making competitive improvements, and this MoU is a step in the right direction.

Beating the competition together

Further collaboration between the IOCs and their partners Tanzania Petroleum Development Corporation (TPDC) and the Government will provide the tools to succeed and ensure that Tanzania LNG can win in the highly com- petitive global LNG space. 

Many regions around the world including Nigeria, Qatar and North America have established LNG export operations with ambitions to expand significantly and in Mozambique, our neighbour, two projects are under way with opportunities to expand further. This competition highlights the need for speed from both the Government and project partners.

A stable and competitive legal and fiscal framework is crucial to ensure that Tanzania can compete with other countries in the global LNG marketplace and create synergies from the best technologies.

Now is the time for Tanzania

We were pleased to hear HE President Samia Suluhu Hassan’s recent comments on LNG during the swearing in ceremony of the permanent secretaries where she stressed the need to now progress the LNG Project in Tanzania.

The same was also highlighted during the inauguration ceremony of the 12th parliament by the late former President of Tanzania, H.E. John Pombe Magufuli when he mentioned the project as one of the strategic priority projects for Tanzania.

This is a clear sign from the top of the political will of the Government of Tanzania to realise the project.

The Project is also included in this year’s Ministry of Finance budget proposal as a priority strategic project. We fully agree that now is the time for Shell, Equinor and TPDC to work together to achieve this strategic aim.

Negotiations on the Host Government Agreement, a key agreement to facilitate the planning and building of the LNG terminal, have been paused since the end of 2019 and 2021 must be the year when action is taken to conclude the negotiations.

The Tanzania Gas and LNG project represents a tremendous opportunity to transform the country’s economy, but that opportunity may not necessarily exist for very much longer. Timing is critical in terms of the project’s success.

A mega project like this takes years to plan, design and execute and hence critical decisions are required now in order to supply the Tanzanian industries of the future with energy.

As the global energy transition gathers pace, perhaps aided by the coronavirus pandemic, demand growth for oil and gas could be slower than previously anticipated and the value of natural gas resources over the long term may decrease.

Natural gas has a key part to play in the global energy transition, especially as a complementary fuel for intermittent renewable sources, but the window in which to act to develop new resources is limited.

Tanzania is encouraged to do so now by demonstrating its commitment and successfully restarting negotiations on the Host Government Agreement and pledging to conclude them in a timely manner.

The global competitiveness of this project would galvanise the companies into action, enable them to move forward with project development and help Tanzania build its competitive edge in a global market and bring significant benefits to the country’s economy and people.

Frederik Grootendorst is Managing Director and Country Chair, Shell Exploration and Production Tanzania Ltd; Dr Mette Halvorsen Ottoy is Senior Vice President and Country Manager, Equinor Tanzania AS