Overview

Tanzania has a small gas sector that produces less than 1 billion cubic metres per year, according to the Energy Information Administration. The country's first gas project began production in 2004 and provides fuel for the Ubongo power plant to help meet the country’s growing demand for electricity. Demand outweighs supply and the country is subject to frequent blackouts. With only 12-14% of the population having access to electricity, there is a chronic lack of capacity and the government imports heavy fuel oil at great expense to help meet demand.

The large discoveries made by Statoil, BG Group, Ophir Energy and ExxonMobil offshore Tanzania will go some way to ease this power supply situation, while also providing the basis for an LNG export project. Tanzania has 1.1 GW of installed capacity, which includes 300 MW of hydropower that is seasonally dependent. Demand for electricity is high, but access to the grid is poor. Gas-to-power plants, such as the existing Songas and Mnazi projects, provide a quick way to use the gas that will provide tangible benefits to the population.

The gas industry faces a number of challenges in Tanzania, not least of which is the lack of infrastructure. Corruption is rife in the country and political immaturity may prove a major stumbling block to making long-term agreements with the oil majors. The government is in the process of updating the petroleum exploration and production legislation to ensure agreements made with oil majors are both fair to the country and attractive to the companies. Once the legislation is finalised, it will enable the oil majors to make investment decisions on the development of their discoveries. Considering the barriers to overcome, Statoil and BG do not expect large-scale production to begin before 2020.

The Tanzanian government hopes development of the gas industry will lead to significant investment in infrastructure, including ports and roads. It is also keen to build a strong domestic market for gas by investing in gas-fired power plants and attracting the petrochemicals, ammonia and cement industries. This will provide jobs and diversify the economy away from cash crops.

Production from less complex, shallower and smaller gas fields is expected to come online over the remaining years of the decade as Tanzania builds up a domestic market and fosters the industries and infrastructure that will pave the way for production from the large deep-sea reserves. The government is working towards this and is, however haltingly, making progress. Existing oil and gas legislation was drawn up in 1980 and a number of new bills are being debated in parliament.

Tanzania’s infrastructure is poor and requires expansion. The main port used for offshore exploration by operators BG and Statoil is Mtwara. It was previously used to export cashew nuts before the oil and gas majors arrived. However, it is unlikely to be the main deepwater port used for the LNG plant.

Page updated: 15/09/2014