Gas terminal decision to be made in 2020

Sectoral authorities say execution and production start-up of these facilities take four to six years after the final investment decision (FID) has been made.

Initially, the FID was set for 2016 but had to be pushed forward several times mostly due to delays in finalising issues related to the site. Oil and gas companies submitted the proposals for the location in mid-2013.

The terminal that is to be located at Machenga Bay in Lindi Region, which is close to large offshore gas finds, will be used to export the fuel to mostly the lucrative Asian markets.

However, there is a raging debate on the viability of the project following persistent decline of gas prices in the global market.The price of LNG for short-term deliveries has sunk more than 26 per cent in the past year to about US$7.10 per million British thermal units.

According to some experts, oil prices, which influence the price of gas, will have to be around US$80 or above per barrel for the terminal to be economically viable and make commercial sense.

The Director General of Tanzania Petroleum Development Corporation (TPDC), Dr James Mataragio, told Smart Money on Saturday that the FID will be made in 2020 following the late last month acquisition of the land where it will be built.

“There are several stages to go through before the FID is made after acquiring the land for the site and compensating the affected villagers,” Dr Mataragio said.

“There will be 18 months for the Host Government Agreement, which is a contract for fiscal issues such as how much the government will be getting from the processing of the gas,” he added.

According to him, the Front End Engineering Design (FEED) phase will take two years. This is mainly about gathering data to help estimate the cost of the project.

“You can now see that we need almost four years before the final decision is made,” Dr Mataragio told Smart Money on Saturday.

Initially, it was estimated that building the plant would cost US$15 billion but that has now been increased to between US$20 million and US$30 million. Had the FID been made this year, construction of the 10 million-tonne-a-year facility would probably have been completed around 2020.

Some LNG projects around the world will face delays or even cancellation, according to the International Energy Agency. Plants in Mozambique and Tanzania are unlikely to come on line by 2020 because of the “challenges” they face in a low oil and gas price environment, CostanzaJacazio, a senior gas analyst at the IEA, said last year.

The land controversy has been the major stumbling block in the development of the LNG plant in Tanzania with some quarters in the sector saying the government indecision had much to do with election politics. There are also claims of a rich politically connected landlord thwarting the acquisition by demanding to be paid US$100 million for his chunk in the 2,070 hectares plot.

Tanzania’s first offshore gas discovery was made in 2010. Since then more finds have been made leading the country to have established reserves of 55.6 trillion cubic feet (tcf). The volume is enough to meet about 11 years of the US homes’ annual demand and supply British users for over 20 years.

Former Energy and Minerals minister Charles Mwijage, now heading the Industry, Trade and Investment docket, said most of the gas will have to be exported because the local economy does not have the purchasing power to absorb all the already discovered gas.

Dismissing the widely-held view against export of the gas before serving the country, he said the available resources are enough to take care of both. He said the gas has to be exported for recovery of the investments made to produce it and generate foreign exchange for the country’s other fiscal and monetary requirements.

Apart from export plans, Tanzania also needs the gas for domestic use, generation of electricity and industrial use. There is also a demand of the fuel in the region withRwanda, Burundi and the Democratic Republic of Congo expressing an interest to import it.

“Domestic demand should be met before exporting to avoid gas scarcity at home amidst plenty. It makes no logical point to supply consumers abroad leaving domestic demand unsatisfied,” noted Prof Honest Ngowi of Mzumbe University.