Shell, Equinor commit to Tanzania LNG as they await host accord

NORWAY (Bloomberg) -- Royal Dutch Shell Plc and Equinor ASA said they’re committed to a project that will allow the export of natural gas from Tanzania.

Proposals to build a $30 billion LNG plant, in gestation since 2014, have been clouded by policy uncertainty in Tanzania’s extractives industry. Investor sentiment toward the East African nation has been soured by the government’s overhaul of mining legislation that’s enabled it to renegotiate contracts.

Still, companies involved in the country’s gas industry maintain they’re prepared to move forward.

“For now, the focus is on agreeing to the Host Government Agreement that is to set the legislative, regulatory and fiscal terms for the project,” Sally Donaldson, a spokeswoman for Shell, said in an emailed response to questions. Before a final investment decision is reached, an engineering study must be conducted that will last about two years and cost hundreds of millions of dollars, she said. Construction of the plant is expected to take as long as five years.

Negotiations on the HGA have been continuing “for some time, and the actual commencement of construction seems to be a long way off,” said Jacques Nel, an analyst at NKC Africa Economics in Paarl, South Africa.

‘Hard-Line Approach’

“The government’s hard-line approach to dealing with large foreign investors in the natural resources sector also puts a dampener on foreign investor sentiment, particularly when considering the magnitude and timelines of LNG investments,” he said.

The government is working on ways to enable the project to proceed, according to Kapuulya Musomba, acting managing director of the Tanzania Petroleum Development Corp. In April, it invited bids for a transaction adviser to negotiate terms of the project, which was originally scheduled for completion in 2020.

“We would like to see this project happen,” having already spent $2 billion on exploration, said Torgrim Reitan, Equinor’s executive V.P., development and production. “What we need now is clarity on the commercial framework. When that is settled then it will allow us to move forward.”

Equinor is the operator and holds the majority of the working interest in Block 2. Exxon Mobil Corp., which has a 35% stake, said it’s cooperating with the government to realize the LNG project. Shell and Ophir Energy Plc hold interests in Tanzania’s Blocks 1 and 4.