Tanzania’s president commissions Chinese-backed natural gas pipeline

The 535-kilometre pipeline, built with a $1.25 billion concessional loan from the Export-Import (Exim) Bank of China, was commissioned by Jakaya Kikwete on 10 October, China’s state Xinhua News Agency said.

The director-general of the Tanzania Petroleum Development Corporation, James Mataragio, told Xinhua that the pipeline has the capacity to transport 210 cubic feet of natural gas a day from Msimbati, in Tanzania's southern region of Mtwara, to Kinyerezi in Dar es Salaam.

Mataragio said natural gas “will act as an economic catalyst for the country, which aims to attain the middle income status by 2025".

Akshai Fofaria of Pinsent Masons, the law firm behind Out-Law.com, said: “As demand and living standards rise, infrastructure and energy requirements must follow; valuable opportunities for local contractors will also accompany this project.”

Fofaria said: “The China Exim Bank has proven itself to be an active player in the region for many years, and shows no signs of stopping despite the slowdown at home. This should be a wake-up call to OECD export finance agencies looking to promote their own domestic supply chains”

Xinhua said the pipeline construction project was started in June 2013 by the China Petroleum Technology and Development Corporation (CPTDC), a subsidiary of the China National Petroleum Company, Xinhua said.

Construction involved laying a pipeline from Mnazi Bay in Mtwara to Kinyerezi via Somanga Fungu, where there was an existing spur line from the Songo gas field in the southern Lindi region, Xinhua said. The CPTDC has also built a natural gas processing plant in the Mtwara region.

Tanzania has an increasing need to boost domestic electricity production. Tanzania’s high commissioner to Zambia Grace Mujuma was reported as saying recently that, because of unexpectedly low levels of water in the country’s reservoirs, several hydropower plants had been taken out of service.

Mujuma said there was a possibility that operations might be suspended at all hydropower plants in Tanzania if water levels continued to fall. However, she said “natural gas will help in cushioning the unprecedented electricity shortage” in the country.

China is a key long-term investor in Tanzania. In October 2014, Tanzania announced the signing of investment deals with China worth more than $1.7bn, including plans to build a ‘satellite city’ to ease congestion in Dar es Salaam and $85m in grants and zero-interest loans from China for unspecified projects. According to figures from the China Business Network, China’s total direct investment in Tanzania soared from $700m in 2011 to $2.1bn in 2012, with investments focused on railways, ports, buildings, road construction, gas pipelines and wind power farms.

Also last year, the World Bank and other international institutions pledged a combined total of more than $8bn in new financial assistance to support infrastructure projects including the development of oil and gas pipelines across all eight countries in the Horn of Africa, including Tanzania.

According to the World Bank, net foreign direct investment inflows to sub-Saharan Africa increased by 16% to a near-record $43bn in 2013, boosted by new oil and gas discoveries in many countries including Tanzania, Angola and Mozambique.

The International Monetary Fund (IMF) has said Tanzania has good prospects over the next decade of becoming a major producer and exporter of natural gas. The IMF said (51-page / 1.03 MB PDF): “This is beginning to generate expectations that greater spending is warranted by likely future revenues. However, a final decision on whether to develop a large-scale liquefied natural gas project using offshore gas resources may not be made by the natural gas companies until 2016, with production to begin no earlier than 2020.”

The ‘East African Oil & Gas Market 2015-2025’ report, published earlier this year by UK-based business intelligence firm Visiongain, said the region could see capital expenditure of $4.19bn in 2015 alone, including spending on both upstream exploration and development and midstream infrastructure.

The report said “Mozambique and Tanzania's substantial offshore gas reserves and proximity to Asian demand centres offer the potential for liquefied natural gas export by the end of the decade”.