Does Tanzania’s natural gas boom mean jobs, electricity?

Exploration Rig16 August 2014, Dar es Salaam – Tanzania is on a boom trajectory due to ongoing natural gas discoveries offshore of the Lindi and Mtwara regions and the government is promising jobs for locals.

But it’s not just about gas industry jobs. The natural gas boom is also viewed as a ticket to increasing access to electricity in a country where just 24 percent of Tanzanians are connected to the national power grid — a number that drops to 7 percent in rural areas.

Unfortunately, most Tanzanians do not have skills or experience needed to work in the natural gas industry.

Over the past two years, Tanzania has discovered 50.5-trillion cubic feet of gas, of which roughly 45-trillion is offshore. This includes the nearly three trillion discovered in June by Norway-based Statoil and its partner, ExxonMobil.

And there may be more to come: Statoil has moved its drill ship to another site in the same Block 2 area and the company said it expects to drill several additional exploration and appraisal wells in 2015.

According to Statoil, the volume of natural gas in the Block 2 region alone represents a foundation for a major gas development project.

“However, it is important to keep in mind that we are still in an early phase and a lot of work needs to be done in order to clarify if a development is possible,” said Knut Rostad, Communication Manager for Statoil Research & Development, in an AFKInsider interview.

“To bring gas from deep water off the coast to shore is challenging and costly. This can only be done based on a robust business case and profound planning,” Rostad said.

With investment in exploration and production of natural gas in the region projected to grow to $10-billion-to-$20 billion over the next decade, new projects and planning have commenced.

While natural gas processing plants, gas-fired power plants, and a Chinese-financed gas pipeline are currently being built, the Tanzanian government, Statoil, ExxonMobil, BG Group, Ophir Energy and Pavilion Energy are also working to develop a liquefied natural gas (LNG) plant that could mean additional billions in investment and revenue.

Construction of such an LNG plant for exporting gas will take seven to 10 years after the release of a final feasibility study expected in November 2014, according to the state-run Tanzania Petroleum Development Corp.

Unfortunately, most Tanzanians do not have skills or experience needed to work in the natural gas industry.

“Foreign firms are open to hire local. However, there are concerns that local skills sets are lacking,” said Anic Kashasha, executive chairman of Tanzania Creative Industries Network (TACIN) in an AFKInsider interview .

But that too is changing. On Aug. 12, Tanzania’s energy and minerals minister announced a goal of training 300 Tanzanians by 2020 to work in the natural gas and oil sector.

Because the booming gas economy offers opportunities for Tanzanians who can access this training, the Tanzania Creative Industries Network (TACIN) in collaboration with Tanzania Petroleum Development Corporation has organized an awareness campaign for communities expected to benefit from these jobs. That includes the upcoming Mtwara Festival on Aug. 16 and 17, which serves not only as a celebration of local cultures and heritage, but also as a showcase to explore job opportunities.

“Basically, there are enormous vocational opportunities around the gas economy because of infrastructure and industrial development,” Kashasha told AFKInsider.

The Gas Economy

In June, Statoil announced discovered large natural gas offshore Tanzania of an additional two-to-three-trillion cubic feet. The discovery is Statoil and partner ExxonMobil’s sixth find and the fifth in Block 2 offshore Tanzania, bringing the total to approximately 20 trillion cubic feet in Block 2.

Statoil has been in Tanzania since 2007 when it was awarded 65-percent control of Block 2, which it operates for Tanzania Petroleum Development Corporation. ExxonMobil and Production Tanzania Limited control the remaining 35 percent.

Tanzania caught the interest of U.S. government agencies and energy companies in 2010 after gas deposits where discovered offshore. In 2013, Tanzania made the cut as one of the six core U.S. Power Africa countries. In fact, it was the Ubungo gas-fired power plant near Dar es Salaam – renovated by General Electric and U.S.-based Symbion Power – that President Obama visited during his Power Africa announcement tour last summer. Since then, Washington has favored helping Tanzania expedite development of it’s energy resources by making the country the sole target of Power Africa’s “Big Results Now” initiative.

While attending the U.S.-Africa Leaders Summit in Washington this month, Tanzanian President Jakaya Kikwete sat in on a number of side events saying the gas discoveries would not become a “resource curse” as in other countries, but a resource to benefit the Tanzanian people.

During an Aug. 4 Center for Global Development luncheon, Kikwete said he was committed to setting up regulations to manage the resource before he vacates office in 2015, noting the gas discoveries came just as Tanzania was launching its 15-year development plan.

“Tanzania expects to receive the first revenue from gas around the year 2020, the time when the country would be implementing the last five-year development plan that ends in 2025,” Kikwete told luncheon attendees. “This gives us an opportunity to put in place the right institutional, legal and policy environment before revenue from gas starts to flow in.”

Later that day, the Corporate Council on Africa’s Business Forum included Kikwete during the “Doing Business in East Africa” session. The following day, the Council sponsored a separate, three-hour “Doing Business in Tanzania” investment opportunities session.

On Aug. 7, Kikwete was also part of the U.S. Chamber of Commerce presidential breakfast discussion featuring heads of state of the East African Community.

Prior to the Summit, Tanzania’s Minister of Energy and Minerals, Sospeter Muhongo met with representatives of a number of energy companies during the U.S. Trade and Development Agency’s African energy trip to visit Houston’s natural gas industry July 30-Aug. 1.

Fueling Local Jobs

Tanzania locals are eager for the jobs that will open up as foreign companies move in to develop the country’s gas reserves. The more foreign firms that are attracted to Tanzania, the more these companies will need local firms for supplies.

“This means there will be a population increase of people serving these developments who will need goods and services of all kinds,” Tanzania Creative Industries Network’s Kashasha told AFKInsider.

Some oil exploration companies including Statoil and BG Group have already invested in providing technical and financial support for regional vocational training.

“We are preparing support programs to vocational training in cooperation with the government and the other oil and gas companies,” Statoil’s Rostad told AFKInsider. “This will be based on the needs of the gas development project and require more details of the plans and timing of activities prior to implementation.”

“Yes, most of the companies in the oil and gas are doing something as far as providing tech training is concerned,” TACIN’s Kashasha said.

Tanzania’s goal is to train 300 workers by 2020, including lawyers, accountants, auditors and engineers, Muhongo said during an Aug. 12 press conference in Dar es Salaam. Some students already study abroad on scholarships from the government of China, as well as in Norway, U.K., U.S. and Brazil.

Local students have also been sponsored by the Energy Ministry for training at the Vocational and Education Training Authority (VETA) center at Mtwara. VETA has centers across the country and is tweaking its curriculum through a $52-million loan approved by the African Development Bank in April. This has allowed VETA to become a center for tech training, and for raising employment skills in eight key, related industries: food preparation, plumbing, welding, carpentry, motor vehicle mechanics, electrical installation and maintenance, laboratory assistant and English language skills.

Security is another opportunity for local employment. As exploration activities picked up offshore, so did Somali pirate activity, forcing some exploration companies to spend as much as $5 million per month for security, according to the Tanzania Petroleum Development Corp.

Meanwhile, Statoil recently took local training to the next level by supporting higher education primarily within geoscience and petroleum engineering, and establishing cooperative projects between University of Dar es Salaam, University of Dodoma, Norwegian Institute of Technology and University of Oslo.

“In total, 21 masters’ students and one Ph.D. student from Tanzania are enrolled in this program,” Statoil’s Rostad told AFKInsider. “We have also started supporting masters’ students at the University of Dar es Salaam in finance and economics, sociology, and mass communication — in total 11 students for the time being. Other university-to-university cooperation projects are being evaluated to strengthen the higher education in Tanzania.”

But it’s not just about gas industry jobs. The natural gas boom is also viewed as a ticket to increasing access to electricity in a country where just 24 percent of Tanzanians are connected to the national power grid — a number that drops to 7 percent in rural areas.

On June 30, the government launched its 2014-2025 Electricity Supply Industry Reform Strategy and Roadmap, which aims to increase electricity generation from 1,583-to-10,800 megawatts in the next 10 years. Key to the strategy is diversification by boosting electric power generation from natural gas-fired turbines from the current 527 megawatts – a third of Tanzania’s electricity generation — to 4,500 megawatts by 2025.

GE is currently closing a deal to provide four gas turbines to Jacobsen Elektro for a new natural gas-fired power plant facility at Kinyerezi. The 150-megawatt Kinyerezi 1 is expected to be completed by October while the 240-megawatt Kinyerezi 2 should be completed in early 2016.

This year, the state-owned power utility TANESCO also expects to complete a 334-mile natural gas pipeline, financed by China, that will connect gas fields near Mnazi Bay in the Mtwara Region and Dar es Salaam to further expanded gas-fired power plants. The project also includes two gas processing plants at Madimba in Mtwara and Songo Songo Island in Lindi.

Keeping it Legal

At the June “Tanzania Oil and Gas Suppliers Conference” in Dar es Salaam, delegates urged the government to establish gas policies and standards in order to achieve credibility with international investors, including “local content” policies requiring international companies to use local businesses and labor in supplying goods and services to benefit local economies.

“We are also preparing plans for ensuring local participation in the activities, through our contracting strategy and through activities to enable local companies to meet the gas industry standards,” Statoil’s Rostad said. “Our sustainability investments will include activities to develop small enterprises locally to enable local participation.”

The Tanzanian government is currently reviewing a draft Gas Utilization Master Plan and Kikwete has directed the Office of the Controller and Auditor General to develop the skills required to audit gas companies from countries that have long been doing such audits – such as Norway and the Netherlands – to ensure first-rate contracts are negotiated and the National Audit Office (NAOT) collects the correct revenue for the government.

Kikwete released a report in June entitled “Transformation of NAOT,” that stresses how the government previously depended on mining companies to provide revenue information from minerals extracted in Tanzania, only to have some firms claim fraudulent losses. Tanzania doesn’t want to repeat that mistake.

Such issues will no doubt be raised at November’s second annual “Powering Africa: Tanzania” convention in Dar es Salaam, where officials from the Ministry of Energy & Minerals, state-owned power utility TANESCO, the Energy and Water Utilities Regulatory Authority (EWURA) and the Dar es Salaam Stock Exchange will explore the evolving political and regulatory landscape to help present sustainable solutions for harnessing Tanzania’s natural resources, including the shape the nation’s final Gas Master Plan.

Tanzania could reap nearly $6 billion in revenue each year starting in 2029 from these new sources of gas, according to the International Monetary Fund. The cash influx is huge compared to the total tax revenue of the 2014-2015 fiscal Tanzanian government budget of roughly $6 billion. The IMF report concludes: “If a large-scale gas project goes ahead, the potential fiscal revenue would be substantial” and could have “a transformational impact on the economy.”



– D.A. Barber, AFK Insider

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