Executive Summary
Tanzania is a major producer of natural gas and has been exporting the product for more than 50 years. The first natural gas discovery in Tanzania was Songo Songo Island (Lindi Region) followed by Mnazi Bay (Mtwara Region). Tanzania has 842 kilometers (km) of gas transmission pipelines, of which 58 km is utilized for industrial customers in Dar es Salaam. The discovered natural gas reserves amount to 57.54 trillion standard cubic feet (TCF) according to the Ministry of Energy data (December 2017). Tanzania does not produce crude oil and has not experienced a recent commercial oil discovery. Tanzania typically consumes around 35,000 barrels per day of refined oil products, all of which are imported.
Current Market Trends
According to the Tanzania Petroleum Development Company (TPDC) gas exploration in Tanzania has been categorized into 5 phases. First phase 1952-1964 – initial research and extraction of natural gas in Mafia, Pemba and Zanzibar undertaken by British Petroleum (BP) and Shell. The second phase 1969-1979 – TPDC was establisheded in 1979 and there was the largest discovery of gas in Songo Songo in Lindi in 1974. The third phase 1980-1991 – the government enacted the Petroleum Act in 198, paving the way for development of gas resources. This phase included multiple gas discoveries in Mnazi Bay in Mtwara in 1984. The fourth Phase 1992-1999 – there was an increase in natural gas research and extraction activities, leading to more international oil companies entering the market by collaborating with TPDC. The fifth phase 2000-current – an increase of international oil companies has led to significant gas discoveries. During this time, the government has devised policies and Acts to more effectively manage this sector. The policies are the National Natural Gas Policy in 2013 and Local Content Policy in 2014. The Acts are the Oil and Gas Revenue Management Act in 2015 and the Petroleum Act in 2015.
These recent discoveries have created challenges for the Tanzanian government on how to manage the fast-growing natural gas sector. The challenges include policy, legal, and institutional frameworks to manage gas resources successfully. With that in mind, the government formulated the Natural Gas Utilization Masterplan 2016- 2045. The plan has four key components: 1.) the large-scale organization of the natural gas industry and design principles that will shape the natural gas subsector growth; 2.) identified funding sources and strategies needed to build the projects; 3.) a development schedule giving priority to the most beneficial projects to the national economy; and, 4.) established guidelines for the designers who will put together specific plans for natural gas utilization projects.
Tanzania Gas Exploration Activity Map (Source: Petroleum Upstream Regulatory Authority (PURA))
Competitive Landscape
National Oil Company (NOC)
TPDC has been the sole license holder for upstream operations since it was established in 1980. In 2009, TPDC formed the Commercial Petroleum Company of Tanzania (COPEC) as its subsidiary to engage in downstream activities, COPEC was changed to TANOIL in 2015 when it became operational. GASCO is another TPDC’s subsidiary in the mid-stream and downstream. It operates and maintains two natural gas plants at Songo Songo and Madimba, two natural gas receiving stations at Somanga Fungu in Lindi and Kinyerezi in Dar Es Salaam, as well as the pipeline from Mtwara to Dar Es Salaam. TPDC is also involved in the East Africa Crude Oil Pipeline Project (EACOP). A $3.5 billion project whereby the longest heated oil pipeline will be constructed between Uganda and Tanzania. Uganda and Tanzania are now negotiating a host government agreement (HGA) with a consortium of International Oil Companies developing the Uganda oil reserves.
International Oil Companies (IOC)
According to the Petroleum Act of 2015, TPDC is the custodian of petroleum licenses for exploration and development in Tanzania and has exclusive rights to participate in all gas projects in the value chain by holding at least a 25% shareholder stake. There are many companies that partner with TPDC in exploration and development activities. These companies are Equinor, Shell, ExxonMobil, Ophir, Pavillion Energy, Dodsal, Pam African Energy, Maurel & Prom, Afren (T) Ltd, Aminex and Ndovu Resource.
Best Prospects for U.S. Exporters
The Tanzanian government understands the importance of having foreign partners to develop their gas resources, especially with the ambitious plan of transforming Tanzania into an industrialized economy. Natural gas has been used as alternative fuel for power plants, industries, hotels, institutions and households. The use of natural gas for power generation started in 2004 while households and institutions started in 2009. Power generation is the leading consumer followed by industries and very minor usage by institutions and homes.
- Power Generation: According to the revised Power System Master Plan (PSMP) 2015, the installed capacity of the gas fired powerplants is projected to increase from 711MW in 2015 to 1,774 MW by 2020. The demand for natural gas under PSMP is forecasted at 8.8 TCF over the period of 30 years.
- Industrial application and an alternative fuel: In 2011, the Ministry of Energy produced a market study projecting gas demand for industry use by 2016 to be at 0.076 TCF. This makes a total natural gas demand of 3.6 TCF from 2016 to 2045. The natural gas utilization master plan assumed demand for gas for light industries will grow at 3% annually.
- Natural gas for domestic use: According to the National Bureau of Statistics (NBS), Tanzania has about 9,000,000 households with household size of 5 people or more. It is estimated that from 2016- 2045 the population will grow by 1.95% per year. It is expected that by 2045 10% of the households will be supplied with gas. This makes a demand of 0.5 TCF for 30 years. Immediate opportunities are in supplying domestic gas using the current infrastructure.
- Compressed natural Gas Vehicles (CNGV): Vehicles registered between 2004 to 2014, 60% use petrol as fuel which have the potential to be converted into CNGV
- Fertilizer (Ammonia & Urea): The Natural Gas Utilization Master Plan 2016- 2045 stated that a 1.3 million ton a year fertilizer plant will be required to satisfy domestic need of fertilizer which is estimated to be about 885,000 tons a year, with the remaining fertilizer for export.
- Methanol: Demand for methanol is increasing in Africa and therefore there is a potential to develop methanol value chain in Tanzania. This may involve DME, MTO, MTG and methanol for other chemical products like paints, pharmaceuticals, adhesives and plastics. There is an opportunity for 1MTPA methanol plant with two trains which will require 1.1 TCF of natural gas for over 23 years.
- Gas to Liquid (GTL): Tanzania depends 100% imports of GTL products. There is an opportunity for a GTL plant with three trains each with capacity of 15,000bpd. This will require 1.8 TCF of natural gas over 20 years.
- Methanol to Gasoline (MTG): gasoline constitutes almost a quarter of all petroleum products imported as reported by EWURA in 2014. There is an opportunity of an MTG plant having the potential to produce about 27% of gasoline and 36% of LPG domestic demand in 2023.
- Liquified Natural Gas (LNG): The Tanzania government is in talks with IOCs to construct a $30 billion LNG export terminal project near huge offshore natural gas discoveries. Construction is expected to start in 2022 and conclude in 2028.
- Gas Pipeline: With the declining oil and gas prices globally, export of natural gas through the pipeline into the regional markets seems to be a better option to monetize Tanzanian natural gas. 3.1 TCF from 2025 to 2045 has been dedicated for export.
- Processing facilities: Processing facilities are required as natural gas demand for local and regional market grows. The existing processing infrastructure has a capacity of 420 mmscfd.
Regulatory Environment
The Ministry of Energy has primary responsibility for the development of the petroleum sector and grants licenses for upstream exploration and development. The Oil and Gas Advisory Bureau advises the Cabinet on strategic matters relating to the oil and gas economy. The Petroleum Upstream Regulatory Authority regulates and monitors the petroleum upstream sub-sector for mainland Tanzania. The Energy and Water Utilities Regulatory Authority established under the Energy and Water Utilities Regulatory Authority Act 2006, exercises regulatory powers in respect to midstream and downstream petroleum and natural gas activities under the act. Here are some of the key laws and regulations governing the gas sector in Tanzania, the:
- Petroleum Act 2015;
- Energy and Water Utilities Regulatory Authority Act 2006;
- Tanzania Extractive Industries (Transparency and Accountability) Act 2015;
- Oil and Gas Revenues Act 2015;
- Environmental Management Act 2004;
- Tanzania Investment Act 1997;
- Income Tax Act RE 2008;
- Petroleum (General) Regulations 2011;
- National Natural Gas Policy 2013;
- Petroleum (Natural Gas Pricing) Regulations 2016;
- Petroleum (Local Content) Regulations 2017.
Regulatory Challenges
Tanzania is not a market for quick “wins” and requires a medium to long-term view for those that want to do business here. The business environment is affected by unpredictability of government policies, multiplicity of taxes and fees, and redundancy of government oversight agencies. On one hand the government fully understands the limitations to private sector growth and has articulated a series of policy reforms to lessen those limitations. But on the other hand, the obvious tension between the government statements and its policy implementation is at the core of the current conditions that discourage private sector growth.
Market Entry Strategies
CS Tanzania recommends new entrants to the market either partner with or subcontract to a company in the market that has experience navigating the local laws and bureaucracy and to fulfill local content requirements. To explore opportunities in the market, U.S. companies can view tenders announced by the Tanzania Petroleum Development Company (TPDC), Petroleum Upstream Regulatory Authority (PURA) and the Ministry of Energy.
The procurement process in the oil and gas industry is transparent and well established, and procurements are made through international or national tenders. Decision-makers evaluate the proposals according to technical merits first, followed by a shortlist of the best proposals for a financial, and commercial round of commercial and financial negotiations and selection.
Technical Barriers to Trade
Lengthy government procedures, difficulties meeting decision-makers and long decision timeframes can make Tanzania a challenging market in which to conduct business. Companies seeking entry into the Tanzania market should prepare accordingly to overcome potential challenges. U.S. firms must have active, well-connected, and well-respected local partners to navigate the complex bureaucratic and regulatory environment.
U.S. Commercial Service Information
To explore the market and discuss customized market entry strategies, please contact:
Ken Walsh
Senior Commercial Officer
Ken.Walsh@trade.gov
Tel: +255 22229 4243
Mary Msemwa
Commercial Specialist
Mary.Msemwa@trade.gov
Tel: +255 22229 4342
