Dec. 20, 2016

Øystein Michelsen


Øystein Michelsen

Senior Vice President & County Manager Tanzania, Statoil

TBY talks to Øystein Michelsen, Senior Vice President & County Manager Tanzania of Statoil, on the company's LPG project, the expected challenges, and having the government's support.


Øystein Michelsen started his career at the research center of Norsk Hydro in 1981. He was attached to Norsk Hydro’s oil and energy division from 1985 and became head of the operations unit for Norsk Hydro’s oil and gas activities on the Norwegian continental shelf from 2004. When Norsk Hydro’s oil and gas activities were merged with Statoil on October 1, 2007, Michelsen was appointed senior vice president for Statoil’s Operations North cluster. He holds a master’s degree in applied physics from the Norwegian Institute of Technology (NTH) in Trondheim.

What is the current status of Statoil's LNG project?

Significant technical work has been undertaken and matured to a stage where it is necessary to have the commercial framework in place before further technical work can be done. The commercial framework is set by the Production Sharing Agreement, which Statoil signed in 2007. Based on this, we have invested around USD2 billion in exploration activities for Block 2, which has resulted in several significant discoveries. Our exploration campaign ended in 2015. Since then, our engagement with the government slowed down due to elections, and most of the previous stakeholders we were dealing with are no longer in positions. We have been able to establish new connections and have started meetings with the government to discuss the commercial terms. Even though the PSA to a great extent defines commercial terms, it is necessary to clarify how this applies for a common LNG plant through a Host Government Agreement. It is also necessary to sort out differences with the new Petroleum Act and the PSAs. A site for the LNG plant has been allocated and it is currently in the final stages of the documentation assurance. The land has been chosen based on technical and non-technical suitability and the land titles will be held by TPDC. TPDC, together with the LNG investors, partners in Block 2 as well as partners in Block 1 and 4, have started work on resettlement plans for the people that are affected by land acquired for the LNG plant. The process will focus on treating affected people fairly and complying with international standards.

What effect is the president himself having on the process?

The president's support for the LNG project is crucial in ensuring that the project obtains the priority it deserves within the government. Government engagement is extremely key in the clarifying the framework for the project. The new Petroleum Act 2015 added uncertainties to the terms of the PSAs. For example, there is a clause on Tanzania's ownership of the companies involved in the project, which we consider to be very demanding for a project of this nature. The requirements have to reflect what is practicable and realistic to achieve in relation to the project; even so there is a strong drive to do more. As the pioneer Tanzania LNG project the regulations should facilitate the project.

What challenges do you expect once the legislative framework has been established?

It is a challenging project. It is at 2,500m depth, 100km from shore. It is also a gas discovery, which requires a distribution network. The only way we can monetize these discoveries is through LNG export, because there is not a stable, reliable market in East Africa for the production levels that are necessary to materialize the project. According to the terms of the PSA, a percentage of the production will be used domestically, and this will increase the existing available domestic gas by more than 200%.

How could this project contribute to the country's industrialization, and what steps could the government take to support that?

The gas from Block 1, Block 2, and Block 4 are planned to be produced through a common LNG plant. This project will have a significant impact in terms of finance, and the potential revenue from this project in terms of gas sales and taxation would flow into state coffers. To expand the activity to establish an industry the most important thing Tanzania can do is open up more acreage for more exploration. It is likely that more gas—or oil—would be found, which could be taken to shore and used for domestic purposes. Building the LNG plant in Lindi will create a lot of in-country expertise, and develop an environment upon which to build more industry in Tanzania.