August 31, 2012
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Tanzania interested in beginning LNG production

Tanzania has begun to develop its liquefied natural gas facilities.

Tanzania Deputy Minister for Energy and Natural Resources Masele has been in discussions with Norwegian energy company Statoil Vice President Tim Dodson to convince BG Group PLC to support building an LGN plant in Tanzania.

"Despite being a costly project in its implementation, its completion will be very beneficial to the government and the country at large and that is why we are insisting on developing it in dry lands," Masele said.

Dodson, however, remained skeptical, noting that with 9 trillion cubic feet of natural gas already discovered in Tanzania it is insufficient at present for a viable LNG project.

He did say that Statoil can talk to BG to see if building an LNG processing facility might be possible through cooperation, with either the Tanzanian government or foreign partners.

The costs involved aren't insignificant. Building an LNG plant costs at least $1.5 billion per 1 million metric ton per annum, a receiving terminal costs $1 billion per 1 billion cubic feet per day throughput capacity and LNG tanker vessels cost $200 million-$300 million apiece.

Generally since the early 2000s, competition and new technologies have seen the prices for construction of LNG plants, receiving terminals and vessels fall, making LNG more competitive as an energy source, but recently rising material costs and demand for construction contractors have driven up prices.

The standard price for a 125,000-cubic-meter LNG vessel built in European and Japanese shipyards until recently was $250 million but when South Korean and Chinese shipyards began building KNG tankers, costs declined 60 percent, and costs also declined because of the devaluation of the Japanese yen and Korean won, the currencies of the world's largest shipbuilders, declining by approximately 35 percent.

"Roughly, the host country can expect to get around 40 percent of total revenues depending on the tax regime and the production sharing agreement," said World Bank official Jacques Morisse.

"This means for Tanzania around 7 percent of its projected (gross domestic product) or about a third of its current fiscal revenues if all above reserves can be exploited. These fiscal resources, while considerable, will not be sufficient to transform Tanzania."

A majority of the world's LNG supply comes from countries with the largest natural gas reserves: Algeria, Australia, Brunei, Indonesia, Libya, Malaysia, Nigeria, Oman, Qatar, and, in the Western Hemisphere, Trinidad, and Tobago.

LNG is transported in double hulled ships specifically designed to handle the low temperature of LNG. Tanzania should its ventures prove successful accordingly would become East Africa's first substantial LNG exporter.

While Tanzania has yet to declare where its shipments should go, the logical new market is East Asia.

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