East African Gas: The Race Is On
East African neighbors Tanzania and Mozambique both have abundant natural gas resources; the race is now on to see which nation can best capitalize on them.
No one can accuse Tanzania of dithering when it comes to normalizing its nascent oil and gas industry. Last year, the country rolled out a welter of energy policy reform notably enacting three pieces of new legislation: The 2015 Petroleum Act (setting the rules of the game for E&P firms), The Tanzania Extractive Industries Act (ensuring transparency and accountability), and the Oil and Gas Revenues Management Act, 2015 (detailing the fiscal terms). This in itself went a long way towards aligning the sector with international norms. “Despite this being a very new industry for us, we are making definite headway in building up Tanzania’s domestic oil and gas capacity and capabilities,” attests James Mataragio, managing director of the Tanzania Petroleum Development Corporation (TPDC), the country’s state-owned national oil company.
This haste to act may well be to do with its budding rivalry with neighbouring Mozambique and a growing awareness that the two are locked in direct competition for foreign capital. Similarly endowed with natural gas reserves and with its Rovuma Basin is estimated to hold over 160tr cubic feet, Maputo is happens to be aiming for the very same East Asian markets that Tanzania regards as its future consumers. “With both countries vying to become Africa’s newest LNG exporter and to snap up contracts before supplies from rival producers in other parts of the world come to market, it is increasingly clear that both are competing head-to-head for the same space,” assesses Business Monitor International’s senior analyst for Africa.
Both nations have, for instance, enacted ambitious targets to commence exporting gas by early 2020s and have been rushing ahead to try and install the requisite infrastructure. The Magufuli administration’s haste to secure FDI for the flagship LNG facility in Lindi, in part, reflects a desire to outpace Mozambique’s development of its own LNG park on the Afungi peninsula in Cabo Delgado province – an initiative that has already secured the strong backing of oil multinationals Anadarko and Eni. “There’s a real race underway to become Africa’s newest LNG exporter and each side is on the lookout for any possible advantage they can gain,” reveals Ronke Luke, analyst at Oilprice. “Even Shell’s recent acquisition of BG Group has been celebrated inside Tanzania, with the rationale being that Shell’s expertise in dealing with national governments, technical know-how and general appetite for risk could boost the country as it competes with Mozambique for limited capital,” she reasons.
Only a few years ago, the bets had been squarely on Mozambique to become the international poster child of East African offshore gas and the country was commonly accepted to hold the edge over Tanzania owning to its having gained a head start in hydrocarbon resource discoveries. Now many are not so sure. A growing number of commentators are today predicting that Mozambique’s LNG dreams will be blown of course by the country’s on-going economic woes. Not only is state-owned Mozambique Asset Management set to default on USD 535 million in loans, which it took out to construct shipyards to service natural gas drilling off of its coast, but Fitch Ratings has also downgraded the country’s sovereign credit rating to CCC – a ranking that denotes a very real risk of default and will likely scare many an investor.
“We wanted to get involved with the growth of indigenous energy projects in East Africa and based on our initial assessment, which has subsequently proved to be largely correct, identified Tanzania as possessing the gas market that would develop most quickly,” reveals Neil Ritson, non-executive Chairman of Solo Oil, a company that has successfully identified over 5tcf of prospective resources in Tanzania and is notable for its activity in the Ruvuma PSA, Kiliwani North, and Ntorya-1 projects.
Others point out that Tanzania’s economic fundamentals are looking very bright. “One shouldn’t forget that Tanzania ranks as the second biggest economy in the East African community and has shown good GDP growth rates in recent years (7% in 2014/2015 according to the Tanzania National Bureau of Statistics) and relatively low inflation (CPI of 5.1% in April, 2016)…and politically the country has remained reasonably stable compared to much of the rest of the region,” evaluates Salim Bashir, partner at KPMG. He does acknowledge, however that “other neighbouring countries such as Mozambique offer a diverse range of alternative propositions, which could ultimately impact on FDI attractiveness dynamics,” and will serve to keep Tanzania “on it’s toes.”
In some ways those differences could even turn out to be complementary. “There is certainly a lot of gas in Mozambique, but I do not see this as a problem in itself; in fact, I believe many synergies could be developed in terms of expertise and other forms of collaboration,” reflects Derek Hudson, president & general asset manager of BG Group in East Africa. “As we further develop capacity here, though, we have to ensure that that capacity is not sucked elsewhere… so, in that respect, the right institutional arrangements have to be made in order to encourage people to stay within the country,” he counsels.