UK: New Gas Find Raises Expectations As Regulations Remain Unclear

Last Updated: 15 April 2013
Article by Peter Kasanda, Paul Jones and Lucy Minde

The announcement of the discovery of a further 4-6 tcf of natural gas in offshore Block 2 has raised expectations that Tanzania's gas reserves will be enough to sustain the development of an LNG plant. Alongside the commercial viability of the gas reserves however, IOCs with an interest in Tanzania are looking for clarity on the legal and regulatory framework that will govern the management of those reserves and the freedom that investors will have to export gas produced.

Status of the Policy

In our February briefing, we reported that the second draft of the Natural Gas Policy (Policy) was understood to have been completed and TPDC have stated that the Policy could be adopted by June.

Though not legally binding, the Policy will establish principles on which the subsequent Natural Gas Utilisation Master Plan and Natural Gas Act will be based. Publication of the final Policy will give investors some idea of the Government's position on some of the major issues affecting the industry (such as ownership of natural gas infrastructure and domestic supply obligations) however the full picture will not be clear until the Natural Gas Act - which will turn the Policy's principles into binding law – is passed.

The passing of the Act is a process that will itself take time. As we have reported previously, any Bill requires three hearings in Parliament (and must be published in the Government Gazette before the first hearing to allow public comment) before it can be adopted and Tanzania's Parliamentary timetable is likely to limit the pace at which this can move.

There are only four ordinary Parliamentary sittings in a year, one of which has already taken place, the second of which will be budget session due to start on April 9 and the final two sessions will take place later in the year. Given that there is likely to be extensive debate over the provisions of the Bill that will become the Natural Gas Act, it may take several sessions for the Bill to move through the required stages.

IOCs will not commit to making final investment decisions until they are comfortable with the legal and regulatory framework in Tanzania and new gas finds will lead to increased calls for clarity in this area.

New gas finds

Statoil and its Block 2 partner, ExxonMobil, on 18 March announced the discovery of 4-6 trillion cubic feet (tcf) of natural gas reserves in the Tangawizi-1 well. This is the fourth successive discovery in Block 2 within a year and adds more weight to the proposal to develop an LNG plant in Tanzania.

Mr. Tim Dodson, Statoil's executive vice president for Exploration, has stated that recoverable gas in the region of 10-13 tcf would add robustness to any plans to develop an LNG project in Tanzania. Statoil now has 15-17 tcf volumes in-place.

Mozambique's new petroleum law

Mozambique's petroleum regulator announced this month that it had completed its review of the nation's oil law (the Petroleum Code of 2001) and submitted it to a ministerial council for discussion who will in turn submit an amended document to Parliament for review. Mozambican Energy Minister Salvador Namburete is reported to have said, "We're going to try to give it priority," while making clear that the Ministry did not have control over its passage through Parliament or the council.

A Natural Gas Master Plan has also been presented, drafted by IFC International, a US-based consultancy, with funding from Norway and the World Bank. Other recent legislative changes in Mozambique include amendments effective January 2013 to the fiscal regulations governing the extractive industry with the introduction of a tax applying to non-resident companies on the sale of Mozambican assets.

Mozambique and Tanzania are joined by other East African countries including Uganda and Kenya in the process of overhauling their outdated legal and regulatory frameworks. We have separately considered the form and pace of regulatory change across the region in a Legal Weekarticle published earlier this month.

Other news

New Chinese Premier visits Tanzania

President Xi Jinping arrived in Dar es Salaam on 24 March for a two-day visit and is expected to discuss Chinese investment in the energy and minerals sector. It is reported that President Xi Jinping will sign 19 contracts whilst in the country relating to projects being implemented jointly with Tanzania though it is not known what percentage of these relate to projects in the energy sector.

Notable Chinese investments in the energy and minerals sector include Sichuan Hongda Group's USD 3 billion investment in the Mchuchuma coal and Liganga iron ore projects in southern Tanzania and the Export- Import Bank of China's financing of the USD 1.22 billion, 523-kilometer gas pipeline from Mtwara to Dar es Salaam, which will be constructed by the China Petroleum Technology and Development Corporation.

BG completes Jodari appraisal

BG announced the completion of its appraisal programme on its Jodari field in Block 1 offshore Tanzania. BG reported the results as being excellent and better than expected. As indicated earlier, the flow of good news from BG and other operators in Tanzania continues to strengthen the case for developing LNG facilities.

Jacka Resources signs PSA

Jacka Resources, an Australian stock exchange listed company, signed a Production Sharing Agreement (PSA) with TPDC at a ceremony that took place on 19 March. The PSA gives Jacka Resources a 100% interest in the onshore Ruhuhu Block in southwest Tanzania and the company is set to start exploration work immediately.

Power crisis set to continue

The debts of Tanzania's state-owned electricity company Tanesco continue to increase and the off-taker faces the possibility that the country's independent power producers will limit or stop supplying to it until outstanding amounts have been paid.

It has been reported that Tanesco has made an application to the World Bank to be provided with a USD 100 million facility to help fund emergency electricity generation but there is no indication yet as to whether these funds will be extended. Such emergency support would also fail to address some of the more fundamental financial problems facing Tanesco.

The Government has on previous occasions come to the assistance of Tanesco and many will expect it to do the same in the near future to prevent the crisis from deepening further.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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