GAS BUILD UP

Tanzania 2015 | ENERGY | REVIEW: ENERGY

Tanzania is hoping to take advantage of its growing gas reserves not only to stabilize its own electricity supply, but also to become a major LNG producer in the future.

Tanzania's recent gas discoveries of between 43 trillion cubic feet (tcf) and 51 tcf in reserves have brought a lot of attention to the East African country. And the Ministry of Energy and Minerals firmly believes that this will increase yet further to over 200 tcf by the end of 2015. So far, most of Tanzania's gas has been found in the south of the country offshore, bordering Mozambique's major gas reserves. During 2013 and 2014, the Ministry explained that 17 international companies, including BP, Statoil, Petrobras, Shell, and ExxonMobil, were conducting exploration at a cost of approximately $680 million. In May 2014, the government closed bidding on its fifth round of tenders for seven deep-offshore blocks and one in Lake Tanganyika. Many international companies were involved in the bidding process with Gazprom (Block 4/3B), Mubadala (Block 4/2A), Statoil and ExxonMobil (Block 4/3A), Ras Al Khaimah Gas (Lake Tanganyika North), and China National Offshore Oil Corporation (Block 4/3A) currently under consideration. Once the evaluation is complete, the successful bidders will be invited into a production sharing agreement (PSA) with the government and Tanzania Petroleum Development Corporation (TPDC). There is a good chance of success within these blocks so competition is high among the companies.

A company that is especially looking for a successful bid is Gazprom. The Russian company is embarking on a number of expansions abroad, with East Africa a prized target. Currently, Gazprom doesn't have any active operations in Tanzania, but it hopes that its bid during the round of tenders will be successful. If the deal comes off, then the company has stated that it would invest heavily in the country, with a $10 billion liquefied gas terminal a top priority; however, this investment is unlikely to begin before 2016 or 2017 and will be spread over a long period.

China has also stated that it plans to invest heavily in Tanzania over the next couple of years, with $10 billion set aside for potential opportunities. One of the country's larger investments has been the $1.2 billion investment from the Export Import Bank of China for a gas pipeline from the gas fields in the south to the country's largest port city of Dar es Salaam. Construction began in July 2012 on the 532-kilometer long Mnazi Bay-Dar es Salaam pipeline. The pipeline has a 36-inch main line and a 24-inch spur line, and will have a capacity of 784 MMcf/d, which will be used in the generation of 3,900 MW of electricity. The pipeline will allow the mass transportation of gas for energy production for many of the companies active in the southern gas fields. Construction was expected to last between 12 and 14 months; however, a number of delays, including poor weather conditions, have meant that the pipeline is still not fully operational. In August 2014, Pan-African Energy Tanzania (PAE) was struggling to raise $300 million in counterpart funds to help with the project, which is being financed by Export Import Bank of China.

PAE is a subsidiary of Orca Exploration Group. Tanzania's National Social Security Fund (NSSF) approached Orca Exploration to deepen its involvement in the energy sector and acquire a majority share in PAE. Orca Exploration Group owns a license for two blocks near Songo Songo Island through Pan Africa Energy, which also operates the gas processing facility on the island. The blocks contain the Songo Songo field, which feeds the facility. Gas from the field will then be sent to Dar es Salaam via a 207-kilometer pipeline. The pipeline is being built from Mtwara to Somanga Funga in South East Tanzania, and then onto Dar es Salaam; still, for the pipeline to be economically viable, PAE will need to sink two more wells, which is where the company is struggling to find the finances. PAE's assets are worth an estimated $81 million, and the NSSF will provide the $300 million in funds over two tranches so that the project can continue. However, some industry experts believe it would be a better decision for the NSSF to team up with TPDC to develop its own wells rather than acquiring a 51% share in PAE. But this could well be a plan for the future after the Social Security Fund has wet its feet in the gas sector.

ELECTRICITY

One of the main reasons behind the investment in the new gas pipeline is to help diversify the country's energy matrix. Currently, around 60% of the country's electricity is generated using hydropower; however, during droughts this can drop to as low as 25%, causing extensive and servere power outages across the country. In an effort to minimize this shortfall, the government is now aiming to increase the prominence of gas-fired generators in the sector, but to do this requires investment. The government set out Tanzania's Power System Master Plan 2012-2017 to establish a roadmap to a more stable electricity supply. In this plan, the sector requires over $11 billion of investment, or around $1.9 billion per year, of which 73.5% is earmarked to go into generation. A part of the investment would also go into paying off the debt of the Tanzania Electric Supply Company (TANESCO), which is somewhere around $412 million currently, as well as pay for capacity charges for existing independent power producers (IPPs) worth close to $635 million.

In 2014, a longer, more advanced plan arose called the Electricity Supply Industry Reform Strategy and Roadmap 2014-2025, which will focus on electricity generation and supply. The overall goal of this strategy is to increase the country's installed generation capacity from 1,583 MW to over 10,000 MW. A significant part of this plan is that over 4,000 MW of the generation will use gas and 2,000 MW will come from geothermal sources, leaving coal, renewables, and hydro to supply the rest. In 2013, the country took a step towards meeting these targets when the Mtwara 400 MW gas-fired generator project was announced. General Electric International and Symbion Power have taken up the task to build the $1 billion power plant, and construction began in 2014. The plant is expected to come online in 2017.