LNG industry venturing into new territory

East Africa’s natural gas boom – where are we now?

As of 2013, East Africa’s proven natural gas reserves were meagre, while production and exports were all but negligible. Tanzania and Mozambique are the only gas producing countries in the region. However, the region holds massive potential: estimates of possible gas reserves off the coast of East and South-Eastern Africa are in the region of 12.5 trillion m3, according to the USGS.

There have been numerous gas finds in Mozambique and Tanzania since 2010. In fact, finds in the Rovuma Basin have provided the operators of the gas projects enough incentive to develop LNG facilities in both countries. The gas sector’s potential is attracting large-scale investment to the region and is providing a boost to the respective economies. Gas strikes off East Africa’s seaboard have led to predictions that the region could become the world’s third-largest exporter of natural gas over the long term.

Mozambique’s gas prospects

The two main international oil companies involved in exploration in Mozambique are Anadarko and Eni. Offshore drilling by Anadarko and its joint partners exploring this region has led to the discovery of an estimated one trillion m3 – 1.8 trillion m3 of recoverable natural gas. The other main international oil company involved in exploration in Mozambique, Eni, has also made large discoveries, with reserves at Mamba, Coral and Agulha combined estimated at 2.4 trillion m3.

With new discoveries continually being made, Mozambique could become a gas giant in Africa. A number of LNG trains are set to be built in the medium to long run to commercialise the country’s gas deposits. Four LNG trains with a combined capacity of 27 billion m3 p.a. are expected to be completed by 2020 with another few trains set to be built by the mid-2020s.

The International Monetary Fund (IMF) estimates that in order to process the natural gas, a forecast $24bn will be needed by oil and gas companies for site preparation and other infrastructure requirements – of which it is assumed that “$4bn will be invested during each year between 2014 and 2019, with all contents assumed to be imported.” The IMF estimated LNG plant construction in Mozambique to commence this year, and ultimately conclude in 2019.

Tanzania’s gas prospects

Prospects for Tanzania are also optimistic.

Although Tanzania’s proven reserves amounted to a mere 6.5 billion m3 at the end of 2012, the Tanzanian government raised its estimate of recoverable natural gas reserves from 814 billion m3 to 934 billion m3 in October 2012, following big discoveries offshore by firms like Statoil ASA, Ophir Energy and BG Group. Following more discoveries in 2013 – including a find of between 56 billion m3 and 85 billion m3 by Statoil and ExxonMobil in December 2013 – total discoveries to date have risen to almost 1.3 trillion m3. As at the end of 2012, the government had signed 26 production sharing agreements with 18 exploration companies, which illustrates the strong investor interest. The Tanzanian energy and minerals ministry noted in August 2013 that the country’s natural gas reserves are expected to reach as much as 5.7 trillion m3 “after the next two years”.

It is reasonable to expect that the next five to 10 years would see continuing exploration. The reality, however, is that to commercialise Tanzania’s offshore reserves of natural gas will take time; estimates are between seven years and a decade. According to the IMF, after commerciality has been declared, this would be followed by design and negotiation of investment proposals. If an LNG export project were to advance, the Fund projects that cumulative FDI into Tanzania could be in the $20bn – $30bn range. According to the IMF, the peak level of investment could be concentrated in the 2017-20 period, with “LNG production starting between 2020 and 2025 and extending over perhaps two decades”.

The IMF projects that at a price of $10 per 1,000 cubic feet in the Far East export market, Tanzania’s export earnings from gas could exceed $3bn annually (10% of 2012 GDP). According to a report by Reuters, BG Group, Ophir Energy, Statoil and Exxon Mobil have submitted proposals to build an onshore LNG plant in the southern region of Lindi. No new LNG project has won a final investment decision anywhere in the world outside of the U.S. for almost two years because of huge cost increases across the industry, a glut of LNG from places such as Australia, and a shale boom that has made the U.S. self-sufficient in natural gas. This makes the choice of the Lindi site an important sign of confidence in Tanzania’s project, even though the final investment decision is not due until 2016. The LNG terminal is expected to cost around $15bn, and the government is expected to make a decision on the site by the end of the year. BG Group has stated that the proposed plant would have several LNG processing units, known as trains, with a total capacity of 10 million tonnes a year, and 2020 is expected to be the earliest date for production to start.

Apart from increased exports, the development of gas production is expected to provide a boost for the domestic economy by increasing Tanzania’s power generating capacity. Construction of a 532 km pipeline that will carry gas from the southern region of Mtwara to the capital, Dar es Salaam, is underway. Construction is expected to be completed by December 2014, and should help to boost Tanzania’s electricity supply, and importantly, reduce the need to import expensive diesel to fuel power plants.

David Okwara

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