Tanzania looks to step up gas production

Tanzania's gas sector is on the cusp of a significant development as the country's offshore gas resources inch closer to becoming a key player in industrial expansion, export revenues, and domestic energy self-sufficiency. Central to this vision is the proposed Tanzania LNG project, spearheaded by global energy giants Shell, Equinor, and ExxonMobil.

However, the project's success hinges on securing a final investment decision (FID) amid complex negotiations over fiscal terms, regulatory frameworks, and commercial agreements.

Currently, Tanzania generates approximately 226 million cubic feet of gas daily, contributing to about 42% of the nation's power supply and serving as a fuel source for various industries, including cement production, metal fabrication, and brewing. This output represents a mere fraction of the estimated 57 trillion cubic feet of recoverable gas reserves, the majority of which lies offshore in the southeastern region.

Liquefied natural gas (LNG) development appears to be the most promising avenue to capitalize on these vast reserves, with the liquefaction plant near Lindi slated to produce between 10 million and 15 million tons annually. This facility, comprising two liquefaction trains, could potentially boost Tanzania's GDP by 7%, according to Equinor's projections.

Despite recent progress, the project's FID remains pending, its conclusion now anticipated by June 2026. The global LNG market dynamics pose both challenges and opportunities for Tanzania. As major producers like the United States and Qatar aim to double their output in the coming decade, the global LNG supply is set to intensify competition.

Additionally, heightened energy security concerns have heightened interest in new seaborne gas sources. The geopolitical tensions stemming from Russia's invasion of Ukraine and the US-Iran conflict have further underscored the need for alternative energy sources, making new sources of seaborne gas supply increasingly attractive.

For Tanzania, seizing this opportunity entails both risks and rewards. While the LNG project will enter a competitive market with a growing customer base, Tanzania's strategic positioning along unrestricted shipping lanes to key markets in Asia, where energy security and emissions reduction goals are paramount, could prove advantageous.

The country's advantage lies in its proximity to markets such as India, China, Japan, and South Korea, all of which are simultaneously striving to bolster energy security while meeting ambitious emissions reduction targets.

Tanzania's LNG endeavor will play a pivotal role in supporting its ambitious electrification roadmap, aiming for 100% electrification by 2030, encompassing 75% on-grid and the remaining 25% through decentralized micro-grids. Gas-fired power plants can provide a stable baseload capacity to enable a swift expansion of renewable energy generation, acting as a crucial complement to hydroelectric projects like the recently completed Julius Nyerere Hydropower Plant, which has doubled Tanzania's national generating capacity to 4,383 MW.

The continued operation of existing gas-fired plants, such as Kinyerezi I and II, and Ubungo II, underscores the importance of gas as a central pillar of Tanzania's electricity system, capable of balancing the variable output of renewable sources.