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September 30, 2013 12:09 am
But their geologists did discover that the 100 stratigraphic shallow boreholes they drilled showed the presence of sealing, reservoir and source rock combinations common in other hydrocarbon-rich regions. In short, they were sure oil and gas were nearby – but beyond the technology of half a century ago.
Fast-forward the last 60 years and new technology – including deepwater drilling and 3D seismic mapping techniques – has allowed geologists to find the elusive hydrocarbons they missed in the 1950s and 1960s.
Over the past three years, a group of companies including UK-listed Ophir Energy, Shell and BG Group, Statoil of Norway, Petrobras of Brazil and ExxonMobil of the US have discovered a string of large offshore natural gasfields. The finds have put the east African nation firmly on the global energy map.
The discoveries, coming on top of even bigger fields in Mozambique, have transformed the region into one of the hottest for the global energy industry. Tanzania could become a leading exporter of liquefied natural gas (LNG) by 2025, supplying markets as diverse as Pakistan, China, Spain and Chile.
“Tanzania is in a formidable position,” says Knut Henrik Dalland, Statoil’s country manager in Tanzania. “We have only scratched the surface.”
The country’s ministry of energy and minerals, which had put Tanzania’s gas reserves at about 40tn cubic feet, expects a fivefold increase as companies drill further. “Tanzania’s natural gas resources will rise to 200tn cubic feet after the next two years,” the ministry said in August.
But transforming the newly found reservoirs into actual LNG shiploads will be a long and tortuous journey – one that could make or break the country’s hope to use natural resources to spur economic development.
First, it will take a huge financial effort – estimated to be at least $40bn and potentially as high as $60bn – that is still years away. Worse, the sector may not take off, as companies worry about soaring construction costs and forecasts of rising LNG supply from other countries, including the US, which is experiencing a shale boom, Australia and, potentially, neighbouring Mozambique.
The start-dates of the projects, which industry executives put between 2021 and 2023, would be crucial to avoid any potential supply glut in the late part of the 2020s and early 2030s, says an executive with a foreign company drilling in the country.
“Tanzania and Mozambique are neck-and-neck and the one to build the first LNG facility will have better opportunities,” the executive says.
The US Energy Information Administration, part of the country’s Department of Energy, said in a report about the east African energy corridor this year that both Tanzania and Mozambique “should focus on securing long-term LNG contracts” or “sell stakes in their LNG projects to Asian investors that are big LNG buyers”.
The US warning is a pointed reminder that without committed long-term buyers, the companies developing the LNG plants are unlikely to obtain the billions of dollars in loans they need to finance their projects.
Second, the development of the industry will need a clear policy and regulatory environment, which is so far lacking.
The Tanzanian energy industry is still regulated by the Petroleum Exploration and Production Act of 1980. This is expected to be replaced by a Natural Gas Policy, which will set the broad terms under which the sector will operate, and a series of regulatory bills that the government, after months of delays and behind-the-scenes arguments with the industry, has yet to approve.
Nonetheless, there are signs the industry and the government have mended their relationship after the first draft of the gas policy, published in mid-2012, triggered strong criticism from foreign energy companies.
The clearest sign of the new climate between the government and the companies is that the private sector has quietly accepted the suggestion from the government for a single location for the onshore LNG terminal.
Still, the industry has yet to agree whether it will build a single plant, which will serve all production sites – as the government would prefer – or two at the same location, one per consortium, as the industry prefers.
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