How a Petroleum Act Delayed Tanzania’s Liquefied gas Project

Tanzanian’s  liquefied natural gas project is facing delays after the recently enacted Petroleum Act 2015 introduced new requirements that must be met before it proceeds.

Major Operator of Tanzania gas field Solo in a statement earlier said that initial gas production commenced on April 4, 2016 and is expected to be delivered to the gas to the newly built Songo Songo processing plant which is tied into the main national pipeline infrastructure to the local Tanzanian market

However, according to the East African newspaper, host Government Agreement (HGA) discussions with the investors, Statoil, ExxonMobil, BG-Shell, which should define the next course of action, have stalled due to delays by the government to constitute its team.

Statoil and ExxonMobil had planned to finalise the project concept by the third quarter of 2014.

Statoil and ExxonMobil had expected to make the final investment decision during the second half of 2016, and to award the engineering, procurement and construction contract with plans to ship first vessels from the Tanzania LNG plant by 2021.

“Tanzanian government asked Statoil and ExxonMobil to follow the Mozambique LNG project model, where all gas prospectors were asked to team up to jointly build the LNG plant” The East African Reported.

The Tanzania government has asked its Block-2 gas prospectors Statoil and ExxonMobil to team up with the other companies prospecting in nearby blocks, BG/Shell with its partners exploring Block-1, Block-3 and Block-4, in order to optimise infrastructure. State-owned Tanzania Petroleum Development Corporation (TPDC) is also a team member.

Increased interest

The increased interest in the project has also created the need for harmonisation of the interests because team members have different Production Sharing Agreements with the government. The harmonisation will only be done under one agreement, the spokesperson for Statoil Tanzania, Genevive Kasanga told The EastAfrican.

 The project is currently awaiting commencement of the host government agreement discussions with the Tanzanian government.

The lead economist at the World Bank in Washington, Cesar Calderon, has in the meantime advised governments in East Africa to work with foreign investors in the areas of oil and gas because local financial muscle may not be sufficient to sustain the high cost of investments in the industry.

According to Ms Kasanga, Petroleum Act 2015 introduced new issues that will be addressed in the HGA discussions. She added that the HGA discussions will also focus on other areas to support a robust business framework.

The issues to be discussed will include regulation of the LNG project, confirmation of the tax and fiscal conditions, commercial structure of the project and a tariff system.

Efforts by The EastAfrican to get comment from TPDC on the HGA delay proved futile as acting managing director, Dou Komba was reportedly out of office.

A Statoil Spokesperson from the head office in Norway, Knut Rostad, reaffirmed the firm’s commitment to the LNG project in Tanzania, but said concrete investment decisions will wait for the outcome of the HGA Talks.

“As you probably know, over $4 billion has been invested in Block 1&4 and Block 2 and significant deep-water gas discoveries have been made, sufficient to support a multi-train land based LNG project,” Mr Rostad said.

Credit: The East African, Additional Reporting by Uganda Oil

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