The long awaited gas pipeline that runs from Mtwara to Tanzania’s capital , Dar es Salaam, was officially declared open last Saturday (October 10) amid great fanfare in Mtwara.
A clutch of ministers and officials from the TanzanianPetroleum Development Corporation (TPDC) heard President Jakaya Kikwete tell a large crowd and the country that he was optimistic that the current power outages will end.
He added he hoped the country will enjoy reliable power supply from now on by exploiting various sources of energy including natural gas that has been discovered onshore Tanzania.
Foreign oil and gas companies, including Aminex (LON: AEX) and Solo Oil (LON:SOLO), will be quietly but fervently wishing that the opening of the pipeline will herald, at long last , the signing of a gas sales agreement (GSA).
Tanzania is not a rich country but as an emerging economy it is actually has economic growth rates that have been running at 7% a year.
There is a huge demand for energy. Estimated 2016 demand from existing and new power plants is around 120mln standard cubic feet of gas (mmscfd). Gas demand is expected to grow to 475mmscfd by 2018.
Some Tanzania business executives have argued that power shortages have acted as a brake on economic development .
The Kiliwani field is on the landward side of the Songo Songo island.
The KN-1 gas well tested at 40 mmscfd. It has been completed and ready to produce for quite a while. The consortium could supply well over 20mmscfd, it is believed.
However, the pipeline (a spur from the main 540km, 36 inch Mnazi Bay to Dar es Salaam pipeline) together with processing facilities has now been completed with Chinese loan financing and is ready to be used.
The sales agreement has been sorted in just about every aspect, it seems. But it still has not been signed off.
The problem with these deals has been payment protection guarantees.
Orca, the company that runs the Songo Songo gas field, Tanzania’s only current producer, had outstanding payment issues with the TPDC.
Companies now, usually, want to ensure that some kind of third party, such as the World Bank, will underwrite payments from the TPDC.
Wentworth, together with operator, French group Maurel & Prom operates the Manzi Bay field in the south of Tanzania. It is the only other foreign consortium, apart from theAminex partnership, which has been ready to produce new gas for Tanzania internal consumption.
Solo’s chief executive Neil Ritson told Proactive that his company could end up signing the long awaited gas sales agreement before the Tanzanian general election in two weeks’ time. This could mean for first gas for the partners, which are in the right place at the right time.
Getting KN-1 into production is very important for Solo because it would establish first output for the company and therefore first meaningful revenue.
Also, a GSA would unlock a further investment from Solo which has said it would pay US$3.5mln for a further 6.5% stake in the Kiliwani concession.
Not only would this help alleviate the company’s debt burden, which has been such a drag on the share price these last two years, it would also allow progress on another of Aminex’s Tanzania assets, the Ruvuma production sharing agreement (PSA), which could be company-making.