Time to invest in LNG project is now

09Jan 2019
Dar es Salaam
Financial Times
Time to invest in LNG project is now

Speaking during the Oil and gas Congress held in Dar es Salaam last year, the Minister for Energy, Dr Medard Kalemani, brushed aside pressure inflicted on the government to quicken negotiations for the liquefied natural gas (LNG) project, of which several foreign companies had already invested......

immensely in southern part of the country.

Dr Kalemani is in record to have questioned those who were blaming the government for taking too long to make a decision on the multi-billion project remarking “how long is too long?”

Dr Kalemani said then that those who are questioning the delay should take note that the project was sensitive and cost intensive. He said the government does not want to repeat the past mistakes which saw the country losing immensely in mega projects involving depleting natural resources.

Recent reports also noted that fear among Tanzanian government officials of repeating past mistakes in mining pacts has been cited as the main cause of delays in starting negotiations with companies seeking to extract liquefied natural gas in the southern part of the country.

Concrete investment decisions by the firms which have expressed interest in taking part in the project are on hold, awaiting the outcome of the negotiations between them and the government.

Equinor, a Norwegian company with interests in the sector has said it is ready to start talks with the government on developing an LNG project based on a deepwater offshore discovery.

The framework for the proposed $30 billion LNG plant is expected to outline and define all the attributes of the project, who is involved, the prices and all appropriate allocations.

Royal Dutch Shell Plc, which drilled 18 wells out of which 16 trillion cubic feet of natural gas has been discovered, said their focus now is the host government agreement, which will set out the legislative, regulatory and fiscal terms of the project.

Shell and Ophir Energy hold interests in Blocks 1 and 4, while Equinor holds Block 2 offshore Tanzania with a 65 per cent stake in partnership with ExxonMobil, which holds 35 per cent.

The National Oil Company under the Tanzania Petroleum Development Corporation (TPDC) will be the government arm in the project with an offer of 10 per cent stake.

The government is right to buy time in thinking about the project because it wants the best out of it for Tanzanians. But, as the government takes its time thinking the best for its people, the world is not waiting.

Reports late last week said that 2019 will see a record amount of liquefied natural gas production is expected to get the green light amid strong global demand, especially from China.

Reuters reported that a final investment decision (FID) could be taken on more than 60 million tonnes per annum of LNG capacity this year, well above the previous record of about 45 million tonnes in 2005 and triple last year’s 21 million tonnes.

According to global experts, decrease in costs and increase in demand provide conducive environment for those who want to invest in the field.

They note that now is a good time to invest because industry costs have really come off a cliff from 2 to 3 years ago.

Huge increases in China’s demand growth as part of a programme to shift households and factories from coal to gas, increased LNG import dependency in Europe and a backlash against dirtier coal is driving optimism in the industry.

We believe that this was optimal time for the government to make a decision on the LNG project if it wants to reap handsomely from it.

This does not mean that the government should rush in making decisions, but it should be conscious that a delay in doing so would see global dynamics on oil and gas change in few years time and make investments costly with dwindling demands.

It is also time to make the decision in order to boost the oil and gas sub sector whose activities have seen a decline last year.

A few years ago, the gas economy was a hype of the country. Almost everybody in the government was talking about how gas economy is going to revolutionarise the country economically. But here we are today and almost everybody has forgotten about this natural resource whose vibrancy made everybody believe that ‘good life for everybody” was not just a political gimmick.

Tanzania has discovered more than 55 trillion cubic feets of gas. This is huge amount but benefits to the economy have been minimal because the resource has not been developed enough.

Time has come now for the government to make sure that this God given resource is put into good use for the benefit of Tanzanians.

We must learn from what happened to uranium project which, after delays, the global price of the mineral slumped and made the entire project meaningless such that it has been abandoned.

The abundance of natural deposits, minerals, oil and gas will not have any impact to people’s lives if they are not exploited.