Africa Discovery & Development: Political Dispute sends Tanzania burgeoning natural gas prospects into chaos

Earlier this month a political dispute over natural gas contracts led to the arrest of two state officials, sending the country’s burgeoning natural gas prospects into chaos—along with billions in foreign investment from major players including ExxonMobil, Statoil, BG Group and Ophir.

Tanzanian authorities have arrested two senior officials at the state-owned entity that partners with these gas giants for their refusal to comply with demands from lawmakers to release details of their combined 26 production sharing agreements. The two arrested include James Andelile, acting director general of Tanzania Petroleum Development Corp (TPDC), and TPDC board chairman Michael Mwanda. The two were released hours later, after the move sparked a political row with Chama Cha Mapinduzi (CCM), the ruling party that has controlled the country for 37 years.

At stake is an estimated 50 trillion cubic feet of natural gas offshore, which could generate as much as $6 billion a year for Tanzania over the next couple of decades.

Tanzania stands to become a major gas export giant in Africa, and the public is increasing pressure to ensure that PSAs are in the national interest. The overriding sentiment is that TPDC is too green to be able to effectively negotiate with these large energy companies to the national interest. Thus, the belief is that these companies are taking advantage of Tanzania.

Furthering the tenuous nature of Tanzania’s rich natural gas scene are elections that will take place in 2015. In the current atmosphere, and with the recent arrests, key final investment decisions could be postponed, delaying Tanzania’s emergence on the natural gas scene. There is an immense amount of regional pressure for Tanzania to launch production, particularly with neighbor Mozambique planning to start exports in 2018.

BG (along with Ophir Energy) is at the forefront of exploration in Tanzania. In March, BG announced plans to build a $10 billion LNG terminal with Statoil in Tanzania. However, the country is still finalizing its natural gas policy and the debate continues over safeguards to be put in place here.

In late October, TPDC announced that it was in the final stages of evaluating five bids submitted by CNOOC, RAK Gas, ExxonMobil/Statoil, Mubadala and Gazprom in May and would declare the winners before the end of the year. Only one block is currently competitive with both ExxonMobil/Statoil and CNOCC bidding for Block 4/3A. We are concerned that the arrests could also throw a wrench into this development.

In the meantime, draft Local Content and Petroleum policies crafted earlier this year are expected to be submitted to parliament sometime this month. This Bill will provide cornerstone provisions for the exploitation of natural gas discoveries. A Natural Gas Utilisation Master Plan; Petroleum Bill and legislation to restructure TPDC are expected to follow, increasing the tensions around the arrest and bringing into question the timing. (by OILPRICE.COM)