Natural gas: Why Tanzania and Why now?

Oil and gas exploration has a long history in Tanzania - the first fruits of which have been gas production “onshore” (including “near offshore”) for domestic use, in particular the Songo Songo field in operation since 2004 and the Mnazi Bay field since 2015 (following the commissioning of the Mtwara-Dar es Salaam natural gas pipeline).

Investors in onshore projects have expressed increased recent optimism as to prospects in Tanzania.

In response to the question “Why Tanzania?”, a December 2021 investor presentation of Orca Energy Group Inc ( the parent company of PanAfrican Energy Tanzania Limited, the operator of the Songo Songo gas field) highlighted (i) a positive investment environment (with the current administration continuing to engage the industry and international investors), (ii) consistent strong economic growth, (iii) strong projected energy demand growth (estimated at 7 percent per annum), (iv) expected future “energy hub” of East Africa (leveraging its natural gas reserves and regional location) (v) industrial growth.

This optimism was mirrored in June 2022 investor presentations by Wentworth Resources Plc, one of the partners in the Mnazi Bay field (together with Maurel & Prom (field operator), and TPDC), as the context for its recent acquisition of a 25 percent interest in the Ruvuma / Ntorya asset (not yet in production), where the operator and 50 percent participant is ARA Petroleum LLC (also a relatively recent entrant to the market), with the remaining 25 percent held by Ndovu Resources Limited (a subsidiary of Aminex Plc).

Aminex Plc’s AGM presentation in May 2022 anticipates “first gas” for the Ntorya development by the end of 2024 and targeted production of 140 MMcfd (million cubic feet per day) - a significant increase when compared to existing national production (128 MMcfd in 2020).

It also highlights the importance of existing infrastructure (including the 36 inch gas pipeline from Mtwara to Dar es Salaam with the capacity to transport 784 MMcfd) and planned infrastructure (in particular, the pipeline from Dar es Salaam to Mombasa).

Whilst onshore and near offshore generates excitement for the near term, deep offshore is the real game changer for the medium to long term following significant natural gas discoveries made in 2013 and 2014 approximately 100km deep offshore (being the northern part of a basin, the southern which is in Mozambique (where even larger discoveries have been made)).

As at March 2016 recoverable natural gas reserves were estimated at 57.54 trillion cubic feet (tcf) (comprising 10.14tcf onshore and 47.13tcf deep offshore).

The aspiration is to develop a liquefied natural gas (“LNG”) plant (to enable export overseas). Yet, only eighteen months ago, the project’s prospects had seemed bleak with Equinor’s announcement on 29 January 2021 of the write off of its USD982m investment in the project. Fortunately this year has seen a turnaround with major progress in moving this project forward - most recently the signature on 11 June 2022 of an initial agreement between the Government and the exploration companies including Shell and Equinor.

At this signing ceremony President Samia Suluhu Hassan urged that the host government agreement (“HGA”), which addresses the fiscal and regulatory framework, be finalised by December 2022. The overall objective is to ensure timely completion of front end engineering and design (“FEED”) so as to enable a final investment decision (“FID”) to be taken in 2025 on this USD30bn investment, which would then take five years to construct.

Global LNG demand is set for significant growth according to Shell’s “LNG outlook 2022” report which highlights the following demand drivers: (i) net-zero emissions ambitions (where natural gas can play a significant role), (ii) the fragility and interdependence of the energy system as demonstrated in 2021, and (iii) energy security, emissions and economic growth in Asia.

This report noted that in 2021 rising LNG demand, combined with supply constraints, caused gas and LNG prices to remain volatile throughout the year with prices reaching record levels in October 2021 as Europe, with historically low storage levels, struggled to secure LNG cargoes to meet expected winter gas demand. Rising coal and carbon prices and continued uncertainty around Russian gas supplies added further pressure on prices. It concluded that this volatility emphasises the need for a more strategic approach to secure reliable and flexible gas supply in future.

The Shell report also noted that LNG will continue to have a key role to play as a reliable and lower-emissions energy source, particularly in Asia, to replace declining domestic gas production, enable coal-to-gas switching and support economic growth. The volatility in energy prices in 2021 shows how the energy market can destabilise quickly without sufficient reliable supply.

Pertinent for Tanzania, it notes that the global LNG market is expected to remain tight in the near term, with a supply-demand gap forecast to emerge in the middle of the current decade. So the opportunity is there, and with good reason the Government is moving to grasp it.

Natural gas: Why Tanzania and Why now?

Oil and gas exploration has a long history in Tanzania - the first fruits of which have been gas production “onshore” (including “near offshore”) for domestic use, in particular the Songo Songo field in operation since 2004 and the Mnazi Bay field since 2015 (following the commissioning of the Mtwara-Dar es Salaam natural gas pipeline). Investors in onshore projects have expressed increased recent optimism as to prospects in Tanzania.

In response to the question “Why Tanzania?”, a December 2021 investor presentation of Orca Energy Group Inc ( the parent company of PanAfrican Energy Tanzania Limited, the operator of the Songo Songo gas field) highlighted (i) a positive investment environment (with the current administration continuing to engage the industry and international investors), (ii) consistent strong economic growth, (iii) strong projected energy demand growth (estimated at 7 percent per annum), (iv) expected future “energy hub” of East Africa (leveraging its natural gas reserves and regional location) (v) industrial growth.

This optimism was mirrored in June 2022 investor presentations by Wentworth Resources Plc, one of the partners in the Mnazi Bay field (together with Maurel & Prom (field operator), and TPDC), as the context for its recent acquisition of a 25 percent interest in the Ruvuma / Ntorya asset (not yet in production), where the operator and 50 percent participant is ARA Petroleum LLC (also a relatively recent entrant to the market), with the remaining 25 percent held by Ndovu Resources Limited (a subsidiary of Aminex Plc).

Aminex Plc’s AGM presentation in May 2022 anticipates “first gas” for the Ntorya development by the end of 2024 and targeted production of 140 MMcfd (million cubic feet per day) - a significant increase when compared to existing national production (128 MMcfd in 2020).

It also highlights the importance of existing infrastructure (including the 36 inch gas pipeline from Mtwara to Dar es Salaam with the capacity to transport 784 MMcfd) and planned infrastructure (in particular, the pipeline from Dar es Salaam to Mombasa).

Whilst onshore and near offshore generates excitement for the near term, deep offshore is the real game changer for the medium to long term following significant natural gas discoveries made in 2013 and 2014 approximately 100km deep offshore (being the northern part of a basin, the southern which is in Mozambique (where even larger discoveries have been made)).

As at March 2016 recoverable natural gas reserves were estimated at 57.54 trillion cubic feet (tcf) (comprising 10.14tcf onshore and 47.13tcf deep offshore).

The aspiration is to develop a liquefied natural gas (“LNG”) plant (to enable export overseas). Yet, only eighteen months ago, the project’s prospects had seemed bleak with Equinor’s announcement on 29 January 2021 of the write off of its USD982m investment in the project. Fortunately this year has seen a turnaround with major progress in moving this project forward - most recently the signature on 11 June 2022 of an initial agreement between the Government and the exploration companies including Shell and Equinor.

At this signing ceremony President Samia Suluhu Hassan urged that the host government agreement (“HGA”), which addresses the fiscal and regulatory framework, be finalised by December 2022. The overall objective is to ensure timely completion of front end engineering and design (“FEED”) so as to enable a final investment decision (“FID”) to be taken in 2025 on this USD30bn investment, which would then take five years to construct.

Global LNG demand is set for significant growth according to Shell’s “LNG outlook 2022” report which highlights the following demand drivers: (i) net-zero emissions ambitions (where natural gas can play a significant role), (ii) the fragility and interdependence of the energy system as demonstrated in 2021, and (iii) energy security, emissions and economic growth in Asia.

This report noted that in 2021 rising LNG demand, combined with supply constraints, caused gas and LNG prices to remain volatile throughout the year with prices reaching record levels in October 2021 as Europe, with historically low storage levels, struggled to secure LNG cargoes to meet expected winter gas demand. Rising coal and carbon prices and continued uncertainty around Russian gas supplies added further pressure on prices. It concluded that this volatility emphasises the need for a more strategic approach to secure reliable and flexible gas supply in future.

The Shell report also noted that LNG will continue to have a key role to play as a reliable and lower-emissions energy source, particularly in Asia, to replace declining domestic gas production, enable coal-to-gas switching and support economic growth. The volatility in energy prices in 2021 shows how the energy market can destabilise quickly without sufficient reliable supply.

Pertinent for Tanzania, it notes that the global LNG market is expected to remain tight in the near term, with a supply-demand gap forecast to emerge in the middle of the current decade. So the opportunity is there, and with good reason the Government is moving to grasp it.