Tanzania’s $30bn LNG project holds lesson for Nigeria

Tanzania is courting International Oil Companies (IOC) to develop a $30 billion liquefied natural gas project and the energy companies falling over themselves are the same ones that turned their noses against Nigeria’s invitation to invest in its Liquefied Natural Gas (LNG) plants.

Contacts have been continuing off and on for four years, but there seems to be optimism over the chances of progress this time around as Tanzania said in March that it plans to negotiate terms for developing a $30billon LNG project with international companies led by Norway’s Equinor. Meanwhile, Nigeria’s projects has not had a significant investment into its LNG in over two decades.

Tanzania has an estimated 58 trillion cubic feet of natural gas reserves. Shell, which has made discoveries on adjacent acreage, is eager to participate in any Tanzanians’ export facility. The company and its partner Ophir Energy are developing the Blocks 1 and 4, which are estimated to hold around 16 trillion cf of recoverable gas.

“It is our understanding that the objective of all partners involved in the Tanzania LNG project is to have a single, joint project. We share the view that such a joint integrated project will result in a globally competitive LNG project, which will yield far greater benefits for the host country than a small project can,” a Shell spokesperson told Petroleum Economist.

The Anglo-Dutch major said it was awaiting a decision from the Tanzanian government on the next steps, but that it was “keen to make progress”.

The government of President John Magufuli has raised the bar by insisting that export projects have a strong focus on domestic infrastructure development.

Contrast this with Nigeria where investors have largely been unimpressed with overtures to build new liquefaction plants.  NLNG Train 7 still sputters after nearly a decade.

Ayodele Oni, energy partner at Bloomfield Law practice said the major problem facing the NLNG sector is its problematic fiscal regime and its unspecific laws which will always distract deep- pocket investors from coming into the country.

Oni said competition is growing across Africa and other countries are stepping up activities in their gas sector unlike Nigeria which has enjoyed the benefit from the oil and gas sector for a long time and seems to be relaxed.

“Nigeria has more gas than oil so we should leverage on our gas resources and continue to put structures in place to encourage deep pockets investors to invest in Nigeria,” Oni told BusinessDay.

Leading consulting firm PricewaterhouseCoopers (PwC) in its Africa oil and gas report said poor infrastructure and an uncertain regulatory framework were the top two challenges identified by new emerging players and markets especially in Uganda, Ghana, Tanzania, Nigeria and Kenya.

“The Nigerian Government has been in the process of implementing the Petroleum Industry Bill (PIB) since 2006 and it has been estimated that uncertainty around it has cost the country $50 billion in capital projects,” PwC noted in its report.

PwC noted that governments around Africa are reviewing or developing their energy policies as many countries are investigating changes in the government take, taxation regulations and state participation.

Since the development of the NLNG, new projects have been too few and far between. Three LNG projects in Nigeria: Olokola LNG, Brass LNG and the NLNG’s Train 7 have been unable to reach final decision by the stakeholders as investors have pulled out.

The OK LNG project was stalled because all the international oil companies (BG, Shell and Chevron) withdrew from the project, with only the Nigerian National Petroleum Corporation (NNPC) left.

The Brass LNG project, which was designed to produce 10 million metric tonnes per annum, was to be built by the NNPC, Total, ConocoPhillips and Eni Group. But ConocoPhillips withdrew from the project in 2013 and has stalled since then.

The difference is an uncertain investment climate worsened by regressive policies. Two years ago, politicians were seeking to amend the NLNG Act without recourse to investors thereby violating the sanctity of contract it signed with investors.