Tanzania: Risks and opportunities for oil and gas investors
Following recent major offshore oil and gas finds in Mozambique, oil firms are increasingly focusing their attention Tanzania, further north on the east African coast, but with a similar geological hydrocarbons profile.
In recent weeks, a series of major oil and gas finds in Tanzania have been announced. In June 2012, Statoil announced a second major offshore gas discovery, following a March announcement by UK-based Ophir Energy of the discovery of 3.4tn cubic feet of recoverable gas in the first stage of its exploration programme in Block 1.
These and other finds have caused Tanzania’s estimates of known reserves of recoverable natural gas to triple, according to a statement issued by Tanzania’s Energy and Minerals Minister on 19th July.
The recent discoveries are widely predicted to transform Tanzania into an important regional and even global gas producer, although Tanzania has already been producing relatively small quantities of gas from the Songo Songo gas field since 2004.
Opportunities
Like many African countries, Tanzania has seen a surge in economic and social development in the last decade, greatly improving its attractiveness to foreign investment.
In addition, the mainland has been largely stable since independence in 1961, partly because no single ethnic group has felt large enough or powerful enough to seek to dominate rival groups, and partly because post-independence leader Julius Nyerere largely succeeded in creating a cohesive national identity (although his policies also contributed to economic stagnation).
The government is also currently trying hard to attract foreign oil and gas firms into Tanzania, in order to ensure that the country’s underground wealth is fully exploited.
Risks
At the same time, however, Tanzania still remains a challenging, and often risky, destination for oil and gas investment. Corruption remains widespread and there growing divisions within the ruling CCM party, which is likely to have implications for political stability, given that the party has effectively ruled the country since independence.
Moreover, political challenges remain between the Tanzanian mainland and the semi-autonomous islands of Zanzibar, fuelled by historical tensions, religious and ethnic differences, and continued agitation among some Zanzibaris for independence. As well as increasing security risks, the tensions between the Zanzibar and central governments have also created legal and political complications for oil and gas firms operating offshore Zanzibar. Long delays and ongoing regulatory uncertainty have seriously hindered the investment climate offshore Zanzibar.
Furthermore, longer-term challenges are looming as a result of the uneven distribution of benefits from Tanzania’s economic development, including substantial youth unemployment, continuing widespread poverty, and resulting frustrations among many in the lower and middle classes.
This is information is extracted from Maplecroft’s new Country Risk Report on Tanzania. For more information on this, please email us at info@maplecroft.com.
