* Tanzania expected to launch bidding round this month
* Mozambique has found larger reserves, bidding round
expected by Q1
* Regulation, infrastructure costs pose hurdles
* U.S., other heavyweights also entering market
* Latecomers risk lower returns after 2020 as supply weakens
By Henning Gloystein and Oleg Vukmanovic
LONDON, Oct 10 Mozambique and Tanzania are
locked in a race to be first to export gas from East Africa, but
a bigger battle awaits as the United States and others gear up
for a share of the global gas market.
Liquefied natural gas (LNG) shipments from huge recent
discoveries could transform their struggling economies, where
average annual incomes languish below $600 and life expectancy
is less than 60 years.
As things stand today, natural gas is the fastest-growing
fossil fuel and the market is tight, boding well for these
Yet return on investment for the companies footing the hefty
upfront costs will hinge on how fast they can reach market and
how much gas is found as new rival LNG exporters come to market
at the same time or sooner.
Those include Australia, which is off to a headstart, and a
thriving U.S. energy market buoyed by shale gas which is
expected to begin exporting gas from 2015.
Russia, the world leader in piped gas, has also set its
sights on LNG, aiming to ramp up exports targeting Asia's
lucrative markets later this decade.
"Mozambique and Tanzania need to move fast to become major
exporters," shipping research group Lloyd's List Intelligence
said in a recent report.
"The clock is ticking for both nations, as global shale gas
exports threaten to saturate the markets before either has had
time to export any gas."
The tasks they face include passing legislation to encourage
and safeguard investors, securing investment for costly
infrastructure, and allaying concerns about potential
"To ensure... LNG captures the market window in 2018-20,
given the five- to six-year construction timetable for such a
large project, it needs to reach financial close during 2013/4,"
said Simon Ashby-Rudd, head of oil and gas at South Africa's
The Tanzanian government is expected to launch a new bidding
round for gas exploration this month.
However, it has yet to finalise its natural gas policy, and
debate rumbles on over how much gas should be sold to foreign
investors and what safeguards should be put in place to ensure
development of the country's own gas and electricity sector.
Adding to the mix, the government's term ends in 2015,
stirring political debate within the ruling party as well as
among the opposition over the best approach.
"The government will hesitate to bring it (the gas
policy)forward in the current political climate," said political
risk consultancy Eurasia Group.
"The opposition will seek a firmer stance on local
participation in the sector," it said, adding that even existing
agreements could be under threat.
In neighbouring Mozambique, the ruling Mozambique Liberation
Front's (FRELIMO) hold on power offers political stability for
foreign investors. Which could mean speedier passage of needed
"Frelimo's dominance remains unchallenged. As such, pending
changes to regulatory and fiscal codes for the gas sector in
Mozambique are likely to pass through the legislature by year's
end and before a new bid round in Q1 2014," Eurasia Group said.
Given their different political and regulatory environments,
energy consultancy Wood Mackenzie expects Mozambique to export
its first LNG cargo by 2019, while Tanzania will have to wait
GAS BOOM COULD END SOON
Britain's BG Group and Ophir Energy have
been at the forefront of exploration in Tanzania, and energy
majors Exxon Mobil and Statoil have also found
"We think East Africa has a very competitive cost base,"
said Mike Fisher, Ophir's chief operating officer, but he noted
that after 2020 it may become more difficult to clinch good
prices for supply deals as increased supply could weaken prices.
Drilling in Tanzania has so far shown reserves of over 1
trillion cubic metres (tcm), twice Europe's annual demand.
In Mozambique, exploration efforts are being spearheaded by
Italy's ENI and U.S.-based Andarko Petroleum,
with drilling producing results showing reserves of more than 3
Reflecting Asia's hunger for gas, Japan's Mitsui,
China's National Petroleum Corporation (CNPC), and South Korea's
Kogas, have also joined projects.
Many analysts put Mozambique's first LNG exports at around
55 billion cm per year, which would amount to annual revenues of
over $30 billion at current spot LNG prices paid in Asia, where
Mozambique plans to sell.
That would make Mozambique one of the world's top global LNG
exporters, trailing Qatar but competing with new suppliers
Australia and the United States.
One factor that could benefit Tanzania is that oil has also
been found in Mozambique waters.
"Any commercial oil discovery would pose difficult questions
for Mozambique: would LNG remain the priority, or would the
focus switch to oil," asked Wood Mackenzie.
WILL IT COME IN TIME?
Despite the huge potential, there are concerns that neither
Mozambique nor Tanzania will be able to develop their potential
before a glut of other new supplies pulls down prices.
It took Angola 11 years of preparation and $10 billion to
launch LNG exports which began this year at a rate of 7 billion
"African gas producers certainly do not represent a
risk-free alternative," said Amy Gibbs at political risk insurer
Jardine Lloyd Thompson.
The United States is expected to begin exports of LNG in
2015, with Bernstein Research estimating that annual volumes
could reach around 70 billion cubic metres by 2020.
By 2016, Australia is expected to be exporting around 85
billion cubic metres of LNG each year to Asia, closing in on
top-ranked Qatar's output of 100 billion cubic metres per year.
(Editing by Jason Neely)