Why conclusion of LNG talks will now take longer
What you need to know:
- Negotiations between the government and two energy multinationals, which were initially scheduled to end this month, are now expected to be concluded next February
Dar es Salaam. Conclusion of negotiations on the planned liquefied natural gas (LNG) project in Lindi Region has been pushed back to next February.
The talks between the government negotiation team and the multinationals Shell and Equinor and their partners were revived last year after stalling for some time.
The two sides have agreed on key issues, leading to the signing of initial Host Government Agreement (HGA), and were expected to conclude the discussions this month before moving on to other stages.
However, a reliable source told The Citizen that the prospective investors in the $30 billion project were still finalising the draft, thus delaying the negotiations until February, two months after they were initially scheduled to end.
“The investors need to discuss some issues before continuing with their negotiations with the government. This means it will not be possible to conclude the talks this month as initially expected,” said the source.
“Another reason is the need to translate some key terms in the contract so that they don’t cause confusion, but for the most part the work has been completed. We are finalising, and in February the draft can be handed over to senior government officials.”
In June this year, President Samia Suluhu Hassan witnessed the signing of the initial HGA, and directed the team to complete discussions on the remaining areas before the end of this month.
During the signing, the government negotiating team, Shell Tanzania vice president Jared Kuchel and Equinor vice president Unni Skordtad Fjoer promised to conclude the discussions within the scheduled time frame.
The government is currently using a collective bargaining system with investors.
To date, the government in partnership with oil and gas companies have discovered a total of 57.54 trillion cubic feet (TCF) of natural gas in various blocks.
That includes 10.41 TCF from onshore wells and 47.13 TCF discovered offshore.
Natural gas is currently used mainly for electricity generation, industrial and domestic activities and powering vehicles.
About 60 percent of the electricity consumed in Tanzania is generated using natural gas, with the rest coming from other sources such as hydropower plants, oil, solar and biomass.
The planned LNG plant in Lindi Region will facilitate export of the natural gas to the world market as European countries look for sources that can be long-term replacements for energy supplies from Russia.
The accords to be signed after the current negotiations, include the final Host Government Agreement, which spells out terms of the project, the project law and the benefit-sharing agreement. A final investment decision could be reached in 2025, allowing exports to start before 2030.
The investing companies are optimistic with the project execution after the discussions conclude.
“From Equinor’s side, we are encouraged by the progress we have seen in the talks between the LNG investors and the government. While we are still working on finalising the agreements to progress our LNG project in Tanzania, we have now agreed on the key items and have entered the drafting stage,” said Equinor spokesperson Ola Morten in an emailed response.
According to the Petroleum Upstream Regulatory Authority (PURA), completion of the discussion provides an opportunity to continue with the stages of Pre FEED and FEED before signing the contract for investment decisions (FID) in 2025 to start production.
In preparation, 642 residents from three villages have already been paid compensations worth Sh5.71 billion to pave the way for the project in the construction area.
According to Equinor, ten percent of the gas produced annually by the company will remain in the domestic market, which can produce eight terawatts (eight million megawatts) of electricity. The company’s assessment is that currently Tanzania uses 5.2 terawatts per year.
Economic estimates have it that between 2004 and December last year, the government saved more than $17 billion (about Sh40 trillion) for using natural gas to generate electricity, instead of importing oil from abroad.
