Africa Commodities Economy FDI Gas Tanzania

Tanzania – The risks of LNG inertia

When we talk about LNG deals in Sub-Saharan Africa, the most successful projects both concluded and in progress come to mind. One of them that could be explored is Mozambique’s multi-billion dollar natural gas liquifier plant that has the capacity to make Mozambique part of the top exporters of Liquid Natural Gas in the Indian Ocean.

Tanzania plans to build between 2022 and 2028 a US$30B onshore LNG plant that could supply for the country an estimate of 10 million tonnes of liquified gas per annum.

The status of the project was for the most part of 2019 unknown. Many speculated whether or not there was potential and some questioned the existence of companies willing to share the market with their southern neighbour (Mozambique). In April the government launched talks with investors and with the Tanzania Petroleum Development Corporation in order to obtain the status of the project. The issue of the government with large International oil companies remains over a Host Government Agreement, that sees the project as a co-ownership from oil giant Shell.

Disagreements over terms have stymied progress. Tanzania’s president, John Magufuli, remains keen to maximise government revenues and domestic offtake, while Oil companies have been seeking terms to make Tanzanian LNG more competitive with rival supply and to put the project’s finances on a stable footing.

Tanzania’s failure to close a deal could have a major impact on the future of the country’s economy regarding its inability to reach a common ground with oil and gas giants. Government sources say that the country is still open to negotiations but the risk of Shell and other investors losing interest is still a risk.

The likely HGA that will be proposed by the government should see a 50% or 51% of equity in the project owned by state gas companies and the rest by one or many LNG-giants. But from what the past negotiations have implied, the payment will be mainly made by foreign investors and both the government, even though they probably will control most of the project’s rights.

As of 2020, the country has received some capital directed towards the project but it still is not enough to green light the full project. In the coming months it is expected a resume in the negotiations and perhaps with the next couple of months a HGA will be sent to investors and other co-owners of the project.

Lucas Continentino

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