Interview: Marc den Hartog, Vice-President East Africa, Shell
What is the status of the integrated LNG project?
MARC DEN HARTOG: The status of the integrated project is that its exploration programmes are complete, all of the conceptual design work is also complete, and the acquisition of the site for the LNG plant at Lindi on the south-east coast of Tanzania – in partnership with the national oil company, Tanzania Petroleum Development Corporation (TPDC) – is in its advanced stages. The current emphasis is to reach an agreement with the host government regarding having a fiscal and regulatory framework put in place, which has been the status quo since early 2017.
In October 2016 the engagement process began between the five investing companies and the host government, represented by multiple government institutions in the government negotiating teams. A number of meetings have taken place since that time, which resulted in a request for a comprehensive and detailed proposal that was tabled by the international oil companies in March 2017 to address and clarify a number of issues. The government has received the 25-page submission and was to provide a counter-proposal in May 2017, but we have not received it as of yet.
How competitive will the project be?
DEN HARTOG: The market for LNG is a global market. Therefore, it does not help to just be competitive regionally in sub-Saharan Africa. It has the fundamental makings of a competitive project, but it does require one vital component. This is a clear, stable and transparent investment framework that will apply throughout this project’s lifetime. What makes an integrated LNG project unique, even in our business, is that the first significant monies were invested in this project in 2011. As of the third quarter of 2017 we are still eight to 10 years away from project revenue. Thus, because payback on these types of projects is inevitably very long, there needs to be a sustainable and equitable agreement between the investors and the government.
What benefits will it bring to the broader economy?
DEN HARTOG: The benefits come from many sides. The project will represent an enormous investment, the largest investment for Tanzania to date. It will result in direct investment and serve as an economic multiplier for the local sourcing of goods and services, peaking during the project’s construction period in particular, but lasting thereafter. The second benefit is the incredible amount of revenue for the government. Revenue sharing with the government is the basis of this project. Under the terms of the agreement, the government and TPDC receive the majority of the revenue and profits. Additionally, more supply will be added to the domestic gas market. The market is already quite well supplied from a number of projects, but this one will add significantly more gas, which will support the Tanzanian economy in its need for natural gas in the future for power generation. We have agreed domestic gas supply principles which will be honoured, but at the moment the domestic natural gas market is oversupplied.
In addition to using gas for power generation, there is also some discussion to use Tanzania’s dry natural gas to produce products derived from methane, namely ammonia, urea, fertiliser and methanol. However, there remains a very small market, so these products would have to be exported. Also, to work economically, these products require extremely low-feed gas prices, and this would only happen here if the prices were subsidised by the government.
All things said, power generation remains a good opportunity enabled by the LNG project. Furthermore, there are quite a few industrial types of manufacturing and commercial complexes that will benefit from power generation and feed gas. These applications present an opportunity to replace liquid oil products with cleaner and more economical natural gas. The growth of the Tanzanian energy market and, by extension, the integrated LNG project, is directly connected to the expansion of the country’s overall economy.
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