Rebels from Ethiopia’s northern Tigray region have announced that they are releasing more than 4,200 prisoners of war, almost two months after ... they agreed to observe a “humanitarian truce” declared by the federal government.
The November resumption of talks between Tanzania’s government and multinational corporates on plans to develop the country’s rich liquefied natural gas (LNG) reserves has triggered optimism that progress may finally be in sight. Royal Dutch Shell and Norwegian company Equinor have been planning to build an LNG terminal at Lindi in southern Tanzania since 2014.
However, progress was undermined by revised terms introduced by Tanzania’s 2015 Petroleum Act, the 2016 Finance Act, and a series of natural resources laws pushed through by the late president John Magufuli in 2017. These enabled the authorities to renegotiate previous production-sharing agreements in their favour and in terms that were less attractive for investors.
In March, Magufuli’s unexpected death altered the political context, with Samia Suluhu Hassan coming to power as the country’s first woman president. “With the political will of the current government […] I will not be surprised if they conclude a deal next year,” says Imani Muhingo, head of research and analytics at Orbis Securities in Dar es Salaam.
The project has many benefits, from the initial inflow of foreign investment and generating jobs to solving the country’s energy challenges and garnering export revenue, Muhingo says. The Bank of Tanzania projects that the launch of the project alone will add 2% to the country’s economic growth rate.
The government is now aiming for construction to begin in 2023. Shell and Equinor made a joint statement to The Africa Report in November: ‘We have been engaging with the government of Tanzania and continue to be pleased about the partnership, cooperation and opportunities associated with the potential project,’ said Jared Kuehl, vice-president and country chair for Shell Tanzania, and Equinor Tanzania’s country manager Unni Merethe Skorstad Fjaer.
Equinor operates Tanzania’s Block 2, in which ExxonMobil also has a stake, while Shell operates Blocks 1 and 4. The talks aim at establishing a ‘competitive and attractive project’, the statement said, concluding: ‘We are pleased with the energy and momentum brought by the government of Tanzania and look forward to having constructive discussions over the coming months.’
There is currently a “favourable window of opportunity with mutual benefits for the government and foreign investors”, says Zaynab Mohamed, an analyst at Oxford Economics in Cape Town. “We expect stakeholders to fast-track negotiations and get the ball rolling,” she adds.
The fact that Tanzanian natural gas has not been developed since its discovery in 1974 hints at economic as well as political obstacles. “The economics are difficult” for LNG as a greenfield project in Tanzania, which lacks developed infrastructure, says Roderick Bruce, associate director at IHS Markit in London.
Fiscal terms and the questions of domestic-market supply and local content remain “potential sticking points,” he says, and even if an agreement is reached with the government, the economics may not stack up versus other possible investments. Bruce points to Equinor’s decision to write down its $982m investment in the project at the start of 2021.
At the time, the company said the project’s estimated break-even price was well above Equinor’s $40 per barrel average portfolio break-even. “Something still has to change to make the project economically attractive,” Bruce says. Shell and Equinor, he adds, are likely to be pushing for better tax terms and could also try to lower costs, for instance through a lower local-content requirement. A more radical move, he adds, would be for the companies to design a scaled-down version of the project, which could drop, for example, the planned onshore liquefaction plant.
President Samia has removed Magufuli’s energy minister, Medard Kalemani, and replaced him with January Makamba. Kalemani was seen as a “roadblock” and his relationship with oil companies was “pretty poor”, Bruce says. Makamba, however, has shown himself to be a “vocal Magufuli critic”. It is now “much less likely” that contracts will be renegotiated in an unfavourable way, Bruce says. Still, the new presidency has not transformed Tanzania, and Hassan does have some “authoritarian tendencies”, he says.
An academic paper by lead author Obadia Kyetuza Bishoge and others argues that Tanzania’s LNG can reduce pollution caused by the use of charcoal and wood for fuel. LNG also has the potential to stimulate industries such as those of fertilisers, chemicals, aluminium and plastics, the paper says.
Risk of oversupply
Nevertheless, there is no international consensus on whether LNG should be seen as a transitional fuel or just another fossil fuel – a subject much debated around November’s Cop26 summit in Glasgow. LNG will have a role to play over the next 20 years, as baseload will still have to come from somewhere during the energy transition, Bruce says. Gas is less polluting than coal, and it will be “politically hard” for the West to tell developing countries to keep their gas in the ground.
In addition, a huge expansion of LNG production in Qatar, as well as the planned LNG development in Mozambique, could create global oversupply and make it harder for Tanzania to bring gas to market. It is clear, Bruce says, that abundant global gas supply and the energy transition mean that East Africa will be left with “stranded gas assets”. He says it is “50-50” at present whether Tanzania’s LNG reserves will be developed.
Orbis Securities’ Muhingo is more optimistic. With the Tanzanian government showing its political will, differences on issues such as the host-government agreement and production sharing will be easier to settle, he says: “The major obstacle was political will. The government now has its eyes on the project.”
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