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China Plans Tanzania Offshore Oil and Gas Exploration

The Lede: China plans for joint oil and gas exploration and increased energy collaboration with Tanzania following a meeting of the countries' energy ministers

What We Know:

  • The state-owned China Offshore Oil Corporation (CNOOC), is planning to start offshore exploration with Tanzania Petroleum Development Corporation (TPDC). An agreement is also in the works between the Chinese and Tanzanian companies to do seismic studies in unassigned blocks prior to a licensing round slated for next year.
  • The companies will be carrying out joint work in deepsea blocks with exploration taking place near large gas fields discovered by a consortium of international energy companies led by Norway’s Equinor ASA, the U.K.’s Shell Plc, and the American Exxon Mobil Corp. The three-company group also plans to build a $42 billion liquefied natural gas (LNG) terminal.
  • This coincides with a visit by January Makamba, Tanzania’s Minister of Energy, to China at the invitation of his counterpart Dr. Jianhua Zhang of the National Energy Administration. The two discussed enhancing bilateral cooperation in the energy sector and implementing renewable energy projects under the Belt and Road Initiative. Makamba also toured the Dongfang Electric factory, which is manufacturing power generation equipment for the Julius Nyerere Hydropower Station in Tanzania. Song Lei, the chairman of the China Africa Development Fund (CADFUND), expressed China’s specific interest in investing in Tanzania’s energy sector.

The Background: Along with other countries in Africa, Tanzania has been seeking to boost its gas exporting capacity as LNG demand in Europe climbs higher due to the pivot away from Russian pipeline supplies, which is anticipated to completely cease by 2027. Oil and gas majors have been seeking to sign deals in the Mediterranean and Africa to achieve the supply capacities needed to meet the expected demand. China has been establishing partnerships in Africa for the last decade under its Belt and Road Initiative.

Likely Outcomes:

  • China has shown an interest in participating in the global LNG trend as energy security around the world drifts into greater uncertainty. Although small at present, China’s participation in the LNG market is increasingly welcome by countries that are seeking international cooperation in the sector. Qatar and China recently agreed on two 27-year partnerships on LNG projects. Not only will it likely secure deals to guarantee its own supply of LNG, but it also exhibits the same foresight that other major oil and gas companies have in building a stake in the growing global market.
  • Meanwhile, the U.S. and other Western countries will push for their own preferred LNG partnerships as part of the larger competition with the Chinese and Russian energy spheres. Their established LNG infrastructures may enjoy some advantage in the near term, but the emergence of other geographic sources will increase the complexity of global LNG supply links.
  • The warm bilateral ties between Tanzania and China through BRI and other cooperation coupled with the precedent of LNG transactions settled in Chinese yuan in place, Tanzania may consider China’s currency in some of its future business activities. Countries participating in Chinese collaborations through the BRI and beyond may increasingly consider this option.

Quotables:

“China has shown commitment to providing training opportunities for Tanzanian energy professionals and equipping them with the necessary skills in renewable energy technology innovation and production. Apart from that, China is also interested to cooperate with Tanzania in exploring and developing natural gas energy projects, further enhancing the countries’ energy collaboration.” – January Makamba, Minister of Energy of Tanzania

“It paves the way for the series of milestones that need to follow to realise this fantastic LNG opportunity for the country and the world.” – Unni Fjaer, Tanzania country manager for Equinor

Good Reads:

China’s Cnooc Plans Offshore Oil, Gas Exploration in Tanzania (Bloomberg)

Tanzania-China Energy Partnership strengthened as Minister Makamba explores collaboration (Daily News)