The world market outlook dims Tanzania’s hope that it's offshore gas will become a driver of future economic growth and development.
If the Lindi gas project does go ahead, the revenues generated will be modest and unlikely to transform the economy, a report by the New York-based Natural Resources Governance Institute (NRGI) says.
“Given the inherent unpredictability of prices, we use the average price over the past 15 years as a reference point. At this price, we estimate that government revenues would average $2.3 billion a year over the period of gas production, equivalent to only $20 per person or 1.2 per cent of GDP a year,” the report says.
Tanzania has 57 trillion cubic feet (tcf) of largely undeveloped and proven natural gas reserves, from which it expects to reap close to $5 billion annually in gas exports revenue through the proposed LNG plant, even though a greater proportion of the gas will be allocated to the domestic power, cement and fertiliser industries.
“Investment in this sector is still very uncertain. We estimate the minimum long-term LNG price at which companies will be willing to go ahead with the project to be $14 per one million British Thermal Units (mmBtu). Comparing this price with forecasts of long-term liquefied natural gas (LNG) prices in East Asia of $8 and the average real price over the past 15 years of $11, our estimate suggests that under the current conditions and expectations, the Tanzanian project is not likely to go ahead,” a report says.
The East African country was expected to construct a LNG plant at the start of this year, with a completion target of 2024. In April, the government signed a draft agreement with a consortium of ExxonMobil, Statoil, Ophir, Shell and the state-owned Tanzania Petroleum Development Corporation to build the $30 billion LNG plant project in Lindi.
In July, Tanzania’s parliament passed the Natural Wealth and Resources and the Natural Wealth and Resources Contracts Bills effectively affecting the countries oil, gas and mining sectors.
“Given that gas revenues are likely to be modest even if investment goes ahead, we do not expect the act’s fiscal rules to have a significant impact on their allocation. Revenues are not expected to reach the 3 per cent of GDP threshold at which they are required to be deposited into the Oil and Gas Fund’s Revenue Saving Account, and therefore will only finance the government’s budget,” the institute says.
“LNG developers are concerned that gas prices will remain low, until demand catches up with supply, making a final investment decision on new LNG capacity construction tricky.
Nonetheless, a renegotiation of terms suggests Tanzanian LNG, which has already suffered delays relating to land acquisition and regulatory uncertainty, may slip further down the lengthy waiting list of pre-FID LNG project,” Dr Neil Ford, an energy consultant said.
Dar es Salaam will also have to contend with a change in its management of public finances as the revised outlook will see it earn less from its gas reserves because of the prevailing market conditions.
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