by Roger Nellist

Tanzania’s Gas Master Plan – and the big challenges for LNG
The Ministry of Energy and Minerals unveiled in December 2016 the Government’s Natural Gas Utilisation Master Plan (2016-2045). With about 55 trillion cubic feet (tcf) of gas so far discovered in the southern coastal and offshore areas of Tanzania, this is the strategic plan intended to transform Tanzania into a major global gas producer and exporter, which in turn will boost economic and social development in the country.

TA115 summarised recent efforts to establish a large liquefied natural gas (LNG) project at Lindi. Now, the Master Plan identifies Japan, China, South Korea and India as the major potential export markets for Tanzanian LNG. These are the countries where most of the growth in demand for gas is expected over coming decades. Yet, the plan acknowledges a real danger: “Despite expected growth in demand, it is likely that there will be market volatility for LNG worldwide due to current developments in the US, Australia and Mozambique. Hence, the market may be very challenging for new upcoming projects like Tanzania”.

Mozambique, for example, has discovered reserves of gas three times larger than Tanzania’s and also is considered to be more advanced with its gas utilisation plans. Moreover, international energy experts forecast that the global LNG market will remain over-supplied and plagued by low gas prices at least until the start of the next decade.

The Tanzanian LNG project faces other challenges too. The Minister of Energy and Minerals, Professor Sospeter Muhongo, recently indicated that the Government would invest some US$30 billion in the project, including for the construction of up to 200 kms of gas pipelines from the offshore discoveries to the LNG plant. He cautioned though that funding such a huge investment would not be easy (commentators point to Tanzania’s deteriorating external debt position and narrow domestic tax base as particular sources of concern) and that the project could take many years to materialise. Moreover, the commercial partners in the project have yet to make a final investment decision.

Accordingly, Tanzania’s Natural Gas Utilisation Master Plan acknowledges that piping some of the gas to neighbouring countries may be a more realistic way of commercialising the country’s natural gas reserves, as well as ensuring that the domestic Tanzanian market is well served. Even these options will not be easy. The Plan states: “Considering that the market for natural gas is scattered throughout the country and beyond, investments into local and regional transmission pipelines are proposed arbitrarily to be done in phases of five year periods”. Depending on their economic viability, pipelines would be built initially from Dar to Mwanza, Dar to Arusha and Mtwara to Njombe. This could be followed in a second phase by a pipeline from Morogoro to Mbeya and, eventually in a third phase, Sumbawanga, Tabora, Kigoma, Kagera and Mara would be supplied.

The Master Plan estimates that Tanzania’s domestic demand for gas over the next 30 years will amount to 32.5 tcf, with 8.8 tcf being used to generate electricity. It signals that over the same three decades 3.1 tcf or even more could be exported by pipeline to neighbouring countries.

Tanzanian stake in Ugandan oil refinery
Arrangements are being finalised for the construction of the pipeline to carry Ugandan crude oil through northern Tanzania to the Indian Ocean export terminal that will be built at Tanga. Construction work is expected to commence in mid-2017 and be completed in 2020.

In a complementary move, Minister Muhongu announced recently that Tanzania will invest in the new oil refinery that is to be built at Hoima in Uganda. Tanzania will take an 8% equity stake, which will cost it about US$150 million. The refinery is to be built in two stages and will reach a processing capacity of 60,000 barrels of crude oil per day. The Ugandan Government invited all EAC member States to participate in the venture, up to 8% each, and Muhongu said that Tanzania is determined to take its full share. Tanzania’s own refinery – the Italian joint venture TIPER, at Kigamboni – closed down in the early 1990s when, in the absence of any Tanzanian crude oil production, it became more economic to import directly the petroleum products needed by the country.

Government acts on two mineral issues
Last Autumn, during a visit to mines in Kahama, President Magufuli announced a ban on the export of mineral sands from gold mining operations. Mining companies have been sending the sands abroad for smelting, in order to recover quantities of silver, copper and tin contained in the sands. As a result, Tanzania loses revenue. The President said that gold miners must now establish suitable smelter plants in Tanzania so that the economy will benefit more.

Tanzania has huge reserves of coal (estimated at 10 billion tonnes) and abundant supplies of gypsum (estimated at 300,000 tonnes). These are two of the commodities used in the manufacture of cement. Yet, some Tanzanian cement factories have reportedly been importing coal and gypsum to service their plants, citing local supply problems, prices and quality as reasons. As a result, in August the Ministry of Energy and Minerals banned the import of coal and gypsum, in a move designed to foster greater local investment to boost production of Tanzania’s own coal and gypsum reserves. (See also the Economics and Business section in this issue.)

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