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Tanzania explores construction of LNG plant, export terminal

Saturday September 17 2016
lng

Tanzania has opened talks with six oil companies on the construction of a $30 billion natural gas processing plant and an export terminal on the South Coast. TEA GRAPHIC | FILE

Tanzania has opened talks with six oil companies on the construction of a natural gas processing plant and an export terminal on the South Coast.

Early this month, the Ministry of Energy held consultations with Statoil ASA, ExxonMobil, BG Group, Royal Dutch Shell Plc, Ohir Energy Plc and Pavilion Energy Pte Ltd ahead of a stakeholders’ meeting set for the end of November.

Tanzania Petroleum Development Corporation (TPDC), Petroleum Upstream Regulatory Authority (Pura) and Tanzania Electric Supply Company (Tanesco) are also taking part in the discussions.

The government and oil firms discussed the modalities of commercial production of natural gas reserves, estimated at 57 trillion cubic feet discovered offshore southern Tanzania, for domestic use and export to Asia.

The talks, held on September 6 at the Ministry of Energy offices, centred on how the firms would implement the project jointly and how the different production sharing agreements would be harmonised in view of a new Petroleum Act that came into effect last year.

The law stipulates that royalties for onshore oil and gas production should be 12.5 per cent, and 7.5 per cent for offshore.

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The companies wanted to know whether the new royalties would apply retrospectively, which would require them to pay more to the government. The matter was not resolved at that meeting, and a committee headed by TPDC was formed to discuss further and give a report at the stakeholders meeting on November 30.

On September 9, Energy Minister Sospeter Muhongo said that Tanzania was keen to see gas contribute to the growth of other sectors like power generation and fertiliser production.

“We want natural gas to be one of the key drivers of Tanzania’s economic growth. We can use natural gas to manufacture fertiliser, generate electricity and earn foreign exchange by exporting LNG (liquefied natural gas),” said Prof Muhongo.

The gas liquefier and the export terminal are expected to be built at Likong’o in Lindi at a cost of $30 billion. The plant will have two processing units (trains) each with a capacity of 5 million tonnes per year.

Prof Muhongo said the firms will start building the facilities once statutory concerns have been addressed.

Statutory requirements

The issues include regulations on gas processing, a tariff system and commercial structure of the project, tax and fiscal conditions. Construction is expected to be completed by 2021, when the country plans to start exporting LNG.

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Statoil country manager Oystein Michelsen said the exploration companies will start construction of the processing plant with an export terminal when the legal framework is completed.

He said exploration companies need enough time to meet the legal requirements and mobilise funds for the project.

The investment decision has been delayed since 2014. In July 2015, Tanzania’s parliament passed the Petroleum Act.

In negotiating a host government agreement with Tanzania, companies involved in the LNG project are expected to seek clarity on how the new petroleum law will affect the firms already operating in the country.

In deep offshore Block 2, Statoil of Norway has a 65 per cent stake and ExxonMobil of the US has 35 per cent equity.

TPDC has a right to 10 per cent interest if the acreage moves to production.

Shell of Netherlands recently acquired London-based BG Group that owns 60 per cent of deep offshore acreage 1, 3 and 4. Ophir from Britain and Pavilion of Singapore each have a 20 per cent stake in the three blocks.

Exploration companies will invest in deep offshore production facilities and pipelines to deliver gas to the onshore processing plant. Ophir, BG, Statoil and ExxonMobil expect the plant to start operations from 2020.

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