While Mozambique makes progress on LNG — at least of the floating variety — Tanzania’s gas ambitions received a blow in early July when the government decided to force all existing upstream investors to renegotiate the terms of their contracts and concessions.
The Natural Wealth and Resources and the Natural Wealth and Resources Contracts bills were passed by the Tanzanian Bunge, or parliament, affecting all parts of the oil, gas and mining sectors.
In contrast with his low key predecessors, Tanzania’s current president, John Magufuli, has earned himself the nickname “The Bulldozer” for attempting to push through reforms by sheer weight of personality.
Magufuli was elected in late 2015 on a platform of tackling corruption: 10,000 civil servants were fired following his election, and he has made repeated claims that foreign investors are guilty of tax evasion.
The government has already clashed with gold producer Acacia Mining, after it alleged that the company was exporting far more gold than it was declaring, and the Tanzania Chamber of Minerals and Energy has complained about the short notice and lack of consultation regarding the recent legislation.
Tanzania sits on 57 Tcf of largely undeveloped natural gas reserves, according to official data.
A significant proportion of gas production will be allocated to the domestic power, cement and fertilizer industries, but LNG exports are the centerpiece of the country’s gas development plans.
A consortium of ExxonMobil, Statoil, Ophir, Shell and the state-owned Tanzania Petroleum Development Corporation has been formed to build an LNG plant in Lindi, in the southeast of the country, close to the border with Mozambique.
A draft agreement on the $30 billion project, which would be by far the single biggest investment ever made in Tanzania, was signed between the government and the consortium in April.
However, although Energy and Minerals Minister Sospeter Muhongo has previously suggested that Tanzania is in a race with Mozambique to bring LNG on stream, Tanzania does not appear to be in any rush.
The economy is, in any case, performing well, with average annual growth of 7% since 2010.
While the LNG developers will not welcome the new legislation, which is motivated by a perception that the host nation may not have got as good a deal as it could, they too may be in no hurry to commit.
There is a large amount of LNG capacity under construction around the world and more planned, not least, according to announcements in July, in the world’s largest LNG producing country Qatar.
LNG developers are concerned that LNG prices will remain low, until demand catches up with supply, making a final investment decision on new LNG capacity construction tricky.
Nonetheless, a renegotiation of terms suggests Tanzanian LNG, which has already suffered delays relating to land acquisition and regulatory uncertainty, may slip further down the lengthy waiting list of pre-FID LNG projects.
Source: S&P Global Platts