africa

Africa at a Fork in the Road: Taking Off or Disappointment Once Again?
the companies decide it makes sense to exploit the resource, it will be some time
before gas is pumped and sold to the market. There is no guarantee that either
company will make this choice (recall that both BP and Shell successfully surveyed
these waters in the 1950s but abandoned them in favor of more attractive options).
Both companies maintain active exploration portfolios (through extensive “farm-out”
arrangements with specialist companies such as Ophir) and are active in a number
of the other big natural gas plays around the world, including Canada, Australia, and
the United States as well as in Nigeria, Egypt, and Equatorial Guinea.
The critical event is the so-called final investment decision (FID), the point at which
the boards of Statoil and BG would irrevocably commit to the enormous capital
costs of developing the Tanzanian fields (the upstream investment in getting the
gas out) and bringing it to market (the downstream investment in the construction of
an LNG plant to supply the Asian market). The sums involved are vast: depending
on whether the eventual scale of the fields warrants a two-train or four-train LNG
plant 6 , the total capital expenditure, at 2012 prices, is estimated to be in the region
of US$25 billion to US$50 billion spread over five years. To put this in perspective,
total GDP in Tanzania is currently about US$30 billion, so the annual investment
spending would be around 20 percent of (non-oil) GDP over the construction phase.
This is clearly a large sum for Tanzania but it also represents an enormous commitment
of funds by the companies—and by the Government of Tanzania should it seek
to take an equity stake in the venture. Their decision to invest shareholder funds
or raise capital in London and Oslo is far from straightforward given the enormous
uncertainty in the global gas market. It is expected that the final investment decision
on the Tanzanian play will take place in the first quarter of 2016.
Barring unforeseen events, such as new more competitive resource finds elsewhere,
or radical changes in the domestic or international political environment, it is likely that
the investment will go ahead. But even so, the long lead times between investment
and bringing natural gas to the market will ensure that substantial uncertainty will
remain about the residual value accruing to the government and people of Tanzania
from the exploitation of this resource.
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