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Tanzanian Gas Economic Impact Revised Downwards

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The Natural Resource Governance Institute (NRGI) recently revised downwards its outlook on the socio-economic impact of natural gas in Tanzania.

In its recent brief titled “Uncertain Potential: Managing Tanzania’s Gas Revenues“, it analyzes the possible outcomes for the planned liquefied natural gas (LNG) project and its potential impact on public financial management.

The brief indicates that the recent downturn in oil and gas markets has plunged potential investments into uncertainty, decreasing the likelihood that gas will have a major impact on Tanzanians’ wellbeing.

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NRGI estimates that the minimum long-term LNG price at which companies would be willing to go ahead with the LNG project to be USD 14 per one million British Thermal Units (mmBtu).

Comparing this price with forecasts of long-term LNG prices in East Asia of USD 8 and the average real price over the past 15 years of approximately USD 11, NRGI estimate suggests that under current conditions and expectations the project is not likely to go ahead.

In addition, even if the project does go ahead, the government revenues it will generate are unlikely to be transformative, given the inherent unpredictability of prices.

These revenues are not expected to reach the 3% of GDP, the threshold at which they are required to be deposited into Tanzania’s Oil and Gas Fund’s Revenue Saving Account, and therefore will only finance the government’s budget.

This is why NGRI recommends avoiding basing public finance plans on the expectation of a gas revenue windfall and managing the public’s expectations about the likely impact of gas revenues, and directing additional spending toward the development budget.

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Improvements in the wider business climate—including the establishment of a regulatory framework that is stable and predictable—will also be crucial to reducing both the perception of investor risk and project costs, NGRI concludes.

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The Ministry of Energy and Minerals (MEM) estimates that 57.27 trillion cubic feet (tcf) of gas has been discovered to date in Tanzania.

Estimates of recoverable gas vary. MEM estimates a recovery factor of around 70%, equivalent to 40.09 tcf.

However, this estimate includes reserves for which there are currently no development plans.

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