Royal Dutch Shell chief sure of Tanzania LNG investment as global market demand surges

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Royal Dutch Shell chief sure of Tanzania LNG investment as global market demand surges

9:18 CAT | 02 Nov 2018

LINDI GAS PROJECT

Royal Dutch Shell and its partners are still committed to investing in the US$30 billion liquefied natural gas ((LNG) plant in Lindi region of Tanzania because global demand for the product is surging at 4 percent per annum.

In an interview with Property Watch following reports that Shell has recently signed an agreement with Canadian government and the government of British Columbia to construct an LNG plant in the country, Shell Tanzania Country Chairman, Axel Knospe said the Canadian investment does not threaten the local facility.

“Shell holds a 40 percent stake in the LNG Canada venture, and there are four other investors in this unincorporated joint venture, so Shell does not have a majority stake. However, most of the JV operating company staff originates from Shell as does the state-of-the-art LNG technology and project development know-how that is being used in the project,” Knospe said.

He pointed out that the fact that the LNG Canada has been given a go-ahead is positive for Tanzania rather than negative because LNG Canada does not constrain Shell’s resources.

“We are a large company in LNG, and at any one time we typically have two or three LNG projects under construction somewhere around the world (today, they are: Prelude in Australia, Elba Island in the USA, and LNG Canada), so this is normal for us. We have the resources and the funding to keep growing the business on multiple fronts,” Knospe assured.

He further stressed that the LNG global market is growing and so for Shell just to grow along with that market the company needs to kick off another project every couple of years hence Tanzania fits very well in the picture.

“And moreover all the experience and innovations that arise from projects like the one in Canada will help to make the one in Tanzania even better,” the Country Chairman added.

He noted that similarly to Tanzania, the LNG development in Canada consist of both “upstream” gas production facilities and a “midstream” LNG processing facility with a total investment is currently estimated at some US$ 30 billion.

There are five parties investing the Tanzania LNG project. Shell as operator of blocks 1 and 4 has partners Ophir and Pavilion. Equinor (this is the new name for Statoil) is the operator of block 2, with partner ExxonMobil.

“The final investment decision is the single most important milestone in any mega-project development, and it means the project is now definitely coming into existence. In the case of Canada, getting to this point was the culmination of seven years of hard and intense collaboration between the investors and the host government,” Knospe noted.

He however pointed out that unfortunately, in Tanzania talks have not gone that far although the investors have completed the gas exploration phase successfully and completed all preliminary design work with an expenditure of some US$ 4 billion already to date.

“However what we do not have yet is the so-called Host Government Agreement, which is needed to establish the commercial, fiscal, and regulatory framework to underpin the project. Discussions on this agreement started in October 2016 but still have a considerable way to go. Once this framework is agreed, the IOCs will need to complete the engineering design of the project, through the so-called pre-FEED and FEED phases,” the Country Chairman stressed.

“For the investors it is always better to go faster; after all they have been sinking billions of dollars in exploration in Tanzania for eight years already, without even a shilling of revenue. However, a mega project like the Tanzania LNG project can only go as fast as both government and investors are willing and able to go together,” he explained.

Knospe said even more important than having a fast agreement is having a sustainable, transparent and equitable agreement because an LNG investment is a very long-term business lasting as long as fifty years or more hence an agreement entered today needs to be seen as equitable by future generations as well.