sharing in governance of extractive industries
Tanzania has estimated recoverable natural gas reserves of 57 trillion cubic feet. South of its border is Mozambique, which has 160 trillion cubic feet. Both countries are in the race to attract investors to develop their reserves with Tanzania last week setting itself a target to become the first in natural gas exploitation in East Africa in the next ten years following President Magufuli’s directive to fast-track the construction of a Liquefied Natural Gas (LNG) plant to cost 30 billion US dollars.
Mozambique, previously favoured by investors, is equally aggressive despite disclosure of a $1.4 billion debt that was previously hidden that impelled donors to halt aid and Fitch Ratings demotion to its credit. The country is expecting investments totalling $100 billion as US company Anadarko Petroleum and Eni of Italy continue to think about a Final Investment Decision (FID). The government expects revenues of up to $212 billion over the life of one LNG project from 45 trillion cubic feet located in Anadarko’s Area 1.
Despite both having relatively weak legislative frameworks for natural gas, the two countries have Gas Master Plans with strong local content enhancement features throughout the value chain, promotion of domestic markets and strengthening of forward and backward linkages.
Despite having fewer resources, Tanzania could have the edge over Mozambique due to the latter’s loan troubles, declining credit rating and news of the Mozambique National Resistance’s (Renamo) recent rebellion in the central province of Zambezia which will unnerve investors. Observers will find it difficult to bet against Tanzania as they recall how the country recently ‘snatched’ a $3.5 billion deal from Kenya to construct a crude oil pipeline from Uganda to the coastal town of Tanga to be completed by 2020. Moreover, the Democratic Republic of Congo (DRC) has now shown interest in using the pipeline and Dar es Salaam is talking of Tanga becoming the ‘oil hub’ of East Africa.
Tanzania’s bravado aside, there are couple of questions to be posed.
Is becoming the first gas producer what should matter over getting the basics right? In its own national gas policy, Tanzania cites numerous challenges it faces such as weak legal framework; shortages of human resources, the knowledge gap, weak infrastructure; and health and environmental safety. These challenges will require years of effort to overcome.
With the massive Mozambican reserves favourably situated for development and export to South Africa, Middle Eastern and Asian markets that are expected to grow and natural gas expected to total 28% of global power production by 2040, can one put the country totally out of the picture despite the recent decline in investor confidence? “After renewable energy sources, natural gas and nuclear power are the next fastest-growing sources of electricity generation,” says the report by the U.S. Energy Information Administration (EIA).
Theoretically, Mozambique can sort out its issues to restore confidence and quickly get its pending deals sealed and continue with its plans. “We continue to be strongly committed to the Mozambique LNG project – to taking it to FID and to building and commissioning a world-class facility,” an industry spokesman was quoted recently, demonstrating this devotion.
But what is less certain is that with the proposed two-train LNG terminal in Tanzania and Mozambique’s plan to have 10 trains operational by 2026 (hypothetically there is sufficient gas in the area to warrant 16 LNG trains), will the two countries manage to compete against each other and with other countries due to produce LNG in the future like China (shale), the USA and Australia?
And where does this competition put the Tanzanian - Mozambique Memorandum of Understanding collaboration on gas? With the cordial relations the two have enjoyed since both became independent countries, perhaps we should not foresee this agreement breaking down but it will be interesting to see how it will be implemented.
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