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Home Energy Natural Gas Viktor Katona
Viktor Katona is an Group Physical Trader at MOL Group and Expert at the Russian International Affairs Council, currently based in Budapest. Disclaimer: views setâ¦
Share Facebook Twitter Google + Linkedin Reddit Premium Content The African Nation That Can’t Get Its Energy Industry Off The Ground By Viktor Katona – May 21, 2020, 2:00 PM CDT Join Our Community The African continent witnessed different reactions to the ongoing period of depressed demand – mature producers like Nigeria and Angola are facing liquidity issues and struggle to keep their 2020 budget afloat, whilst up-and-coming oil-producing nations like Senegal or Ghana are expected to have a relatively cushioned blow thanks to the economic steam they’ve picked up in the past years. Yet for the long-term future of African oil production, sub-Saharan nations should proactively seek to attract international investors now, to reap future benefits when the price of crude rises back to commercially reasonable levels. The case of Tanzania, long mooted to become the star of the nascent East African oil bonanza, is a fitting example of why the coronavirus-triggered market impacts are so divergent.
Over the last couple of years Tanzanian authorities seemed to do their utmost to scare off foreign investors. First, they have ran ashore with tightening upstream licensing terms in the 4 th Licensing Round by increasing the government’s total take to a whopping 94%. Second, it has tied all oil and gas-related arbitration to local courts via the Natural Wealth and Resources Act in 2017, rendering the engagement of international majors even more difficult. Against the background of waning interest, Tanzania has also stopped all negotiations with international oil companies on the review of PSA terms and conditions. The Tanzanian government claimed that it needs to suspend communication so as to be able to focus on a thorough review of gas-related PSAs.
As a consequence of all the above developments, Tanzania is compelled to postpone its 5 th upstream licensing round well into 2021-2022, despite initial promises to hold it as soon as 2017. All this only a couple of months after Tanzania stated its intention of reopening its hydrocarbon licensing activity after an almost 5-year hiatus. The licensing round would have included 8 deep-water blocks in water depths of 2-3000 meters with quite a remarkable drilling history: Blocks 1,2,3 and 4 have a total of seven gas discoveries yet were subsequently relinquished at different stages by Statoil, ExxonMobil, BG and Ophir. Tanzania’s hydrocarbon exploration story is essentially one that revolves around oil majors going deeper and deeper into the abyss of the Indian Ocean. Related: The World’s Most Controversial Oil Frontier Falls Out Of Favor With Big Banks
The first geological surveys in Tanzania’s shallow water deposits took place in the early 1950s – despite having discovered several fields, BP could not find any commercially viable assets. Then the Italian AGIP, now part of ENI, took over and spearheaded the Tanzanian surveying drive, however most of the activity took place in shallow water in water depths of 100-200 meters and yielded no breakthrough. After the 1 st licensing round was launched in 2000, many oil majors were tempted to try their luck in a new oil frontier – exploration activities led by Ophir, Petrobras and Shell garnered some 18-20 TCf in recoverable gas reserves, enough to feed a mid-range LNG terminal but not necessarily enough to satiate domestic gas demand.
Concurrently, the island of Zanzibar which has been seeking legislative and regulatory autonomy from the federal government in Dodoma, intends to hold a deep-water offshore licensing round in 2021. The standoff between Zanzibar and mainland Tanzania is by no means new – Shell has in fact clinched 4 offshore blocks in 2002 off Zanzibar’s coast and has been waiting all these years for the two parties to decide how the revenues should be distributed between the two. With Zanzibar retaining its own parliament and president ever since it joined mainland Tanganyika in 1964, the energy-related feud is closely intertwined with Tanzania’s political travails. In September 2019 Zanzibar has issued a tender for a 2D seismic survey in its deep-water offshore in water depths of 500-3500 metres.
The crux of the matter is that despite recent legislative advances in safeguarding Zanzibar’s sovereignty over the resources in its offshore zone – among others the 2016 Zanzibar Oil and Gas Act – the federal constitution supersedes all regional laws. As things stand now, the Constitution of Tanzania stipulates that all oil and gas-related issues are a union matter, which might be read in a way that should any Zanzibari drilling result in a substantial discovery, the federal government might revisit its light-handed upstream policy. Related: Oil Jumps After API Reports Draw In Crude Oil Inventories
Tanzania has also been very slow to advance the Tanzania LNG project. Having first discovered natural gas in the country’s offshore in 2010, constructing an LNG terminal in Lindi to supply the Asian market has been on the agenda for 6-7 years already and even under the most optimistic scenarios it is only in 2028 that it would be commissioned. That is a very sluggish pace for a project that has ExxonMobil, Royal Dutch Shell and Equinor onboard and that would add some 2% per year annual growth to Tanzania’s GDP. Part of the problem is a persisting sense of discontentment that the Tanzanian President has reportedly made clear to the project’s consortium, namely that they are seeking profits to the detriment of the government and asked for a reassessment of the project’s objectives.
Although discussion on the topic is generally scant, the fact that the government has been pushing for separate talks with each investor (instead of the previously held joint round talks) to conclude the host government agreement already insinuates a lack of progress on the topic. Were governmental interference or unrealistic demands to derail Tanzania LNG, both Tanzania’s and Zanzibar’s offshore licensing round would take a biting blow. There are always different ways of looking at things, of course, the adverse consequences of the oil price drop have some positive ramifications, too, for Tanzania – this African country of some 60 million has no refinery and currently imports unprecedently cheap products from the Middle East. But the larger picture needs a positive institutional boost so as to bring Tanzania back to the forefront of East Africa’s E&P developments.
By Viktor Katona for Oilprice.com
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