http://www.iol.co.za/business/international/east-africa-risks-losing-out-in-gas-export-race-1.1590928#.UljfRxAyL0c
October 11 2013 at 06:35pm
October 11 2013 at 06:35pm
London - Mozambique and Tanzania are locked in a
race to be first to export gas from east Africa, but a bigger battle
awaits as the US and others gear up for a share of the global gas
market.
Liquefied natural gas (LNG)
shipments from huge recent discoveries could transform their struggling
economies, where average annual incomes languish below $600 (R6 000) and
life expectancy is less than 60 years.
As things stand today, natural gas
is the fastest-growing fossil fuel and the market is tight, boding well
for these would-be sellers.
Yet return on investment for the
companies footing the hefty upfront costs will hinge on how fast they
can reach market and how much gas is found as new rival LNG exporters
come to market at the same time or sooner. Those include Australia,
which has a head start, and a thriving US energy market buoyed by shale
gas, which is expected to begin exporting gas from 2015.
Russia, the world leader in piped
gas, has also set its sights on LNG, aiming to ramp up exports targeting
Asia’s lucrative markets later this decade.
“Mozambique and Tanzania need to
move fast to become major exporters,” shipping research group Lloyd’s
List Intelligence said in a recent report.
“The
clock is ticking for both nations, as global shale gas exports threaten
to saturate the markets before either has had time to export any gas.”
The tasks they face include
passing legislation to encourage and safeguard investors, securing
investment for infrastructure, and allaying concerns about potential
corruption.
“To ensure… LNG captures the
market window in 2018 to 2020, given the five- to six-year construction
timetable for such a large project, it needs to reach financial close
during 2013/14,” Simon Ashby-Rudd, Standard Bank’s head of oil and gas,
said.
The Tanzanian government is expected to launch a new bidding round for gas exploration this month.
However, it has yet to finalise
its natural gas policy, and debate rumbles on over how much gas should
be sold to foreign investors and what safeguards should be put in place
to ensure development of the country’s own gas and electricity sector.
Adding to the mix, the
government’s term ends in 2015, stirring political debate within the
ruling party and the opposition over the best approach.
“The
government will hesitate to bring it [the gas policy] forward in the
current political climate,” political risk consultancy Eurasia Group
said.
“The opposition will seek a firmer
stance on local participation in the sector,” it said, adding that
existing agreements could be under threat.
In neighbouring Mozambique, the
ruling Frelimo’s hold on power offers political stability for foreign
investors, which could mean speedier passage of needed regulations.
“Frelimo’s dominance remains
unchallenged. As such, pending changes to regulatory and fiscal codes
for the gas sector are likely to pass through Mozambique’s legislature
by year’s end,” Eurasia Group said.
Given the different political and
regulatory environments, energy consultancy Wood Mackenzie expects
Mozambique to export its first LNG cargo by 2019, while Tanzania will
have to wait until 2021.
Britain’s BG Group and Ophir
Energy have been at the forefront of exploration in Tanzania, and energy
majors Exxon Mobil and Statoil have also found gas.
Reflecting
Asia’s hunger for gas, Japan’s Mitsui, China National Petroleum
Corporation and South Korea’s Kogas have also joined projects.
“We think east Africa has a very
competitive cost base,” said Mike Fisher, Ophir’s chief operating
officer, but he noted that after 2020 it might become more difficult to
clinch good deals as increased supply could weaken prices. – Henning
Gloystein and Oleg Vukmanovic for Reuters