WAY DOWN IN THE HOLE

Tanzania 2014 | ENERGY | FOCUS: GAS DISCOVERIES

Profitable government tenders and significant discoveries of natural gas blocks are driving exploration and foreign investment.

In response to public demand and in support of the national economy, the Tanzanian government is seeking to draft new plans to address recent gas discoveries. In June 2013, President Kikwete highlighted capacity building and a focus on improving Tanzania's human resources in order to better utilize and take advantage of the natural resource boom. Drawing upon the experience of developed nations, such as Norway, Tanzania is seeking to employ best practices while developing its newly discovered fields. To this end, Norwegian oil giant Statoil is already heavily involved in the local industry. In partnership with BG group, Statoil has made public its plans to build a $14 billion liquefied natural gas (LNG) facility in Tanzania, with the aim of transforming the country into a major energy exporter. BG Group Tanzania's May 2013 results prompted plans to develop infrastructure and build up to 17 new drills at a cost of $680 million in the coming year. Better-than-expected results in terms of the size of the newly discovered Mzia-2 gas field located 45 kilometers offshore, and the reserves it contains are accelerating the pace of government action and investor prospects. Tests showed that gas was flowing at a maximum rate of 57 million cubic feet (mcf) per day. The discovery came less than one year after the initial Mzia-1 field was identified.

BG Group has been active in Tanzania since 2010, mainly through its work in Blocks 1, 3, and 4. Prior to the discovery at Mzia-2, the company had uncovered seven natural gas fields and appraised two other wells. Meanwhile, Statoil has made three major gas discoveries in Block 2 over the 2012-2013 period, with the new discovery in the Tangawizi-1 well adding between 110 billion cubic meters (bcm) and 117 bcm of gas to the total national reserves. Statoil's previous discoveries include the Zafarani 1, Lavani 1, and the Lavani 2 wells, with the company's total uncovered reserves amounting to between 420 bcm and 480 bcm. Statoil has been present in the country since 2007, when it was awarded the tender for the exploration and production of Block 2. The latest estimates put Tanzania's gas reserves at over 41 trillion cubic feet (tcf). However, the Minister for Energy and Minerals, Sospeter M. Muhongo believes that this number could reach 100 tcf over the next couple of years. Recent tenders tend to suggest he is right to think so. Singapore's state investment company, Temasek, one of the most liquid of Asian public investors, bought a 20% stake of an LNG block from UK-listed Ophir Energy in October of 2013, at a cost of close to $1.3 billion. Its Pavilion Energy branch will join Ophir and BG to boost Tanzania's gas sector, and the government will also benefit from substantial taxation on the transaction.

Currently, the total recoverable resources in Tanzania are estimated to be in the range of 10 tcf and 13 tcf, and some analysts estimate that the total amount could be in the neighborhood of 330 tcf. However, a distinct lack of infrastructure in Tanzania and its surrounding region will need to be addressed before huge amounts of LNG can be exported to markets such as East Asia. Statoil and BG Group have already invested in the establishment of two trains designed to carry natural gas to other hubs in the region. However, according to energy consultancy firms operating in the country, there could be enough gas reserves in East Africa for as many as 20 trains. If installed, a railway network for this purpose would give Mozambique and Tanzania a combined production capacity of approximately 100 million tons of LNG annually. A pipeline project that would pass through the Mtwara region of the country is also in the works, pending a final government decision in 2013. Investors include TPDC, Canada's Wentworth Resources, and France's Maurel & Prom. If constructed, the Mtwara pipeline will also be financed by a $1.2 billion loan from China. The project is expected to take between 12 and 14 months to complete. Although the project proposal was met with criticism from the governments of the region, the Kikwete administration has been promising that not only would the pipeline benefit them through employment, but that the gas would also be allocated to rural communities. In May 2013, President Kikwete assured the public that gas would be for the benefit of all in Tanzania, with only 14% would be channeled to the commercial capital of Dar es Salaam, while the rest would stay in Mtwara.