Tanzania saves Sh15.5tr on gas economy in 11 years: TPDC

Dar es Salaam. Tanzania has saved up to $7.4 billion (about Sh15.5 trillion) by using natural gas as a source of energy from July 2004 to June 2015, according to calculations by the Tanzania Petroleum Development Corporation (TPDC).

The country saved this amount by using natural gas to replace expensive fuel such as heavy furnace oil (HFO), diesel, petrol, jet fuel and others, which would have been imported from abroad.

Mr Aristides Katto, a researcher with TPDC, told editors in Bagamoyo recently that electricity production was an area, which natural gas saved the country a lot of money. In this area, the country saved $6.7 billion after substituting other sources of fuel with natural gas.

“Industries, which have decided to use natural gas as a source of energy have saved about $653.48 million, while other institutions also, which have switched to natural have made savings amounting to $278,455,” he said.

Mr Katto said this was a testimony of how natural could boost the national economy. But this also shows that gas can promote growth in other sectors. Therefore, as the country gears up for industrialisation, it can bank on natural gas as one of the basic ingredients to make the drive a success.

But as the country benefits as a whole, TPDC has also charted plans, which will see the nation major commercial city, Dar es Salaam, also benefit from natural gas.

While it is industries and institutions in Dar es Salaam, which benefit from natural gas, new TPDC plans will ensure the natural resource also benefits individuals through direct connection in their houses in gas for domestic and compressed natural gas (CNG) projects.

Currently, only 70 houses have been connected to the natural gas pipeline, which runs from Ubungo to Mikocheni. On CNG, there is only one CNG vehicle filling station and two vehicle conversion institutions - one at BICO – UDSM and another one at DIT – along UWT Road.

Currently, the Dar es Salaam natural gas system comprises a 16-inch pipeline network, which includes 50km of the main ring. The pipeline serves 37 industries, three institutions and about 70 households.

But this is set to change as TPDC plans to expand the natural gas pipeline network to reach individuals, industries and institutions.

According to Mr Katto, the envisaged project dubbed Dar es Salaam Ring Main, involves a 65-km main ring pipeline, which will be connected to 150km of trunk lines.

“It is these lines, which will distribute natural gas to more individuals, industries and institutions,” he said.

In addition to that, there will also be 15 CNG vehicle filling stations. They comprise three mother stations and 12 daughters.

“Under this project, we envisaged to have 15 refuelling stations, which will be able to accommodate 8,000 vehicles and connect 30,000 households,” he said, noting that the project was owned by TPDC.

Mr Katto noted that feasibility studies and detailed engineering designs for the project had been completed and TPDC was looking for funds in form of loans for rolling out of the project.

Gas benefits

As noted above, the natural gas resource has the potential to shake up other sectors of the economy. For Tanzania, experts say focus should be on agriculture, which has been touted as the mainstay of the economy. Agriculture is the only sector, which employs the majority of Tanzanians. More than 70 per cent of Tanzanians are employed in this sector.

Experts note, for instance, that natural gas can be used to fuel agro-processing industries and because it is a cheaper energy, it will lead to production of cost effective products. These products will give Tanzania an edge, when it comes to competing for customers locally and internationally.

There is also a possibility of producing fertilisers from natural gas and this will directly benefit farmers.

“These linkages, in addition to benefiting various sectors and individuals, they will also create various sources of government revenue through tax,” noted Mr Katto.

Another advantage, which will be derived from the expansion of natural gas activities, is employment. It is estimated, for instance, that the Liquefied Natural Gas (LNG) plant will create at least 15,000 employment opportunities during construction. When the plant starts working, it will need at least 5,000 workers.

But because people, who work in this area need specialised skills, a LNG construction project opens up opportunities for universities to enrol more people in the field of oil and gas.

Natural has is also a cheaper source of energy. As noted above, in 10 years and at a time, when natural gas use was very small, the country saved about Sh15.5 trillion. With high demand for electricity and other sources of energy, there is no doubt that the expansion of natural gas use will enable the country to make tremendous savings, while producing power at affordable rates, which will benefit individual users, industries and institutions.

Another important thing to note here is that with good plans, Tanzania has opportunities to become a major energy exporter and supplier in the East Africa Region and beyond.

On the other hand, the use of natural gas will reduce greenhouse gas emissions and make Tanzania comply with global standards. The use of natural gas will also help Tanzania avoid degradation of forestry and this will boost the conservation of natural forests.

Experts agree that the use of natural gas will reduce dependency on charcoal and firewood.

“There are many benefits and opportunities associated with the natural gas sub-sector. We need to take initiatives to identify available opportunities and take them. If we cannot take these opportunities, others will take them,” noted Mr Katto.

Downside

But the discovery of huge reserves of natural gas does not automatically translate into wealth and prosperity for Tanzania and its people. There are a lot of things, which could go wrong and deny Tanzania and Tanzanians the benefits from the natural resource.

Worse still, there are other factors on which the natural gas sub-sector depends, which are beyond the control of the country.

Mr Shaidu Nuru, petroleum geologist and local content coordinator at TPDC notes that fluctuation of natural gas prices at the world market will hurt Tanzania. He notes, for instance, that due to a fall in oil and natural gas prices at global level, the number of production sharing agreements (PSA), which Tanzania enters with producers, has been decreasing.

“At one time we recorded up to 10 PSAs, but due to a fall in oil and natural gas prices, the number of agreements has dropped to 13,” he told editors during a workshop organised by Journalists Environmental Association (JET).

Mr Nuru noted that model PSAs (MPSA) had also changed. He said, for instance, that there was no need for an investor to acquire a licence ahead of the signing of MPSAs in 2013. He MPSAs contained better fiscal terms, but they were less attractive to investors.

Mr Nuru noted also that another uncertainty stemmed from the infancy of the natural gas industry in the country. He said at this stage the country should be careful to enters contracts with foreign companies because there was less experience in best practices on such issues.

There are also local content issues. Many people and in some areas even leaders, have been made to believe that natural gas is going to benefit Tanzanians. But, for that to happen, there should be feasible preparations and strategies.

“For natural gas to benefit individuals and the country, local content mechanisms should be given priority. To what extent has the country prepared its people to participate in the gas economy? This leaves a lot to be desired,” he stressed.

Local content experts warn that, the Local Content Policy, 2014 is not enough to guarantee that Tanzanians and the country will benefit from natural gas. They note that even the policy itself has a lot of gaps and shortcomings, which, if not addressed, many will be excluded from the sub-sector.

Geopolitics

“But there is also competition. Falling prices will necessitate special strategies to ensure that we get customers for our gas. On the other hand, this is intertwined with issues of geopolitics. You cannot participate in global oil and gas business these days without geopolitics,” noted Mr Nuru.

Mr Silas Olang, the regional associate of the Natural Resource Governance Institute (NRGI) noted that Tanzania should be very careful, when it came to geopolitics as it negotiated its selling strategies. He noted that selling of natural gas in the world market was not controlled by the rules of demand and supply only.

He explained, for instance, that when prices of oil and gas increased a few years ago, many companies were attracted to exploration activities. But after the discovery of the resources, the prices started going down.

“Many countries in the world and now banking on vigorous Chinese economy will escalate oil and gas prices as demand increased. But what if the economies of other countries start to shrink amid the Chinese growing economy?” he wondered.

Mr Olang noted that most gas was discovered, when its price in the global market was high.

“Now that the price has gone down should inform us on decisions, which we are going to make on our natural gas. Even when many gold mining contracts were signed, the situation was the same,” he said.

He explained that there was a danger that the country would lose if it rushed for signing natural gas contracts at this time. However, on the other hand, if it decides to delay, there is a possibility of the prices to decrease further.

“But there is sense in waiting because oil and gas prices have always been volatile. Therefore, there is a possibility that one day these prices will increase and that will be an ideal time for the government to sign contracts,” he said.

However, the decision to wait for the prices to stabilise should also be informed by the fact that the factors, which attributed to oil and gas price fluctuations had also changed.

He noted that some countries had started new technologies, which reduced production costs.

“On geopolitics, we should not only look at China. For instance, there are reports that India is going to be the next big player as far as energy demand is concerned,” he noted.