Natural Resources in Tanzania - An alternative look at the exploitation of Natural Gas

Tanzania is a nation that is well-endowed with natural resources. If one were to analyze our net worth, it would be in the multiple billions of dollars of natural resources in the area of minerals and hydrocarbons. To put this into further perspective we also need to look at our expenditure requirements including our annual budget, which usually is revealed every June.

In June 2023, our parliament approved a government budget of TShs 44.4 trillion (approximately USD 18.4 billion). It then baffles one as to how we have ourselves in a space where we have such assets and yet have outstanding debts and are unable to effectively use our natural resources as a source of reliable and steady means of funding our budget. We can be forgiven for claiming to not have the skills or funding to exploit them as of now, but part of it can be attributed to lack of vision and patriotism on the part of some involved in planning as well as negotiations in many of the investments. Our mineral resources are by far and largely untapped, and it is hoped that investment in this area will add to our treasury receipts, but for the moment the low-hanging fruit is the availability of natural gas, which is commonly acknowledged to be at 57 trillion cubic feet and possible even more. Most of this is offshore in the Indian Ocean within our maritime waters, but so far we are on course to have this exploited in an agreement with a consortium of major companies through the Tanzania Liquified Natural Gas Project.

In any investment of this nature, there is a substantial amount of capital involved and an expected return on investment. As of the last negotiations we are looking at the development costs of $30 billion. At the current world prices today we are looking at prices hovering from 2.719 to a possible peak of 3.513 in December 2024 per mmBTU. This puts the net worth of the known reserves at around 177.5 billion dollars if we use $3 per mmBTU as an average.

Essentially, even if the investment were worth up to $50 billion, at today's prices we have a profit margin of at least $80 to $100 billion if you include operating and extracting costs. This is why it is important to have these figures in the public domain for decision-making. Let us remind ourselves that our annual budget is $18.4 billion. Natural gas exploitation utilizing sale alone would provide us with at least 4 years of annual budgetary expenditure revenue, or at the very least a means of reducing pressure on the public by way of reduced taxes and could help with development expenditure as well as reduction of external and internal debt. It is obvious that the execution of such is more complex than shown here, but the intention is to show our decision-makers that increased bureaucracy in the exploitation of our natural resources does us no good.

We are now well aware, according to a study by Cornell University last November, that LNG is worse for the climate than coal. This is because its production involves methane leaks at every stage of the process. Environmentalists are now pushing and have succeeded in slowing down the Biden administration's approval for LNG plants, and we can be sure global environmentalists will be on our case, damaging the financial prospects of a delayed project in the long term. This is in addition to the recent decisions to reduce fossil fuel use by 2050, including the phasing down and eventually out of hydrocarbons including gas.

As of writing this article, Tanzania signed an agreement for the purchase of increased shares in the Mnazi Bay Gas project. That is indeed a good step in the right direction, and, as our esteemed President rightly noted, will ensure that more revenue from the value of our natural resources ends up benefitting our citizens. It is also pertinent to note that currently over 60% of the electricity being used in our national grid is being generated by gas driven turbines using our natural gas. Recent developments in hydrogen gas production also allow for conversion using natural gas, which would also be an environmentally friendly way of using the energy. We would do well to hasten the exploitation of this resource, as it will reduce pressure on our treasury as well as greatly contribute towards GDP.