VZCZCXRO0395
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHDR #0368/01 1551156
ZNR UUUUU ZZH
R 041156Z JUN 09
FM AMEMBASSY DAR ES SALAAM
TO RUEHC/SECSTATE WASHDC 8573
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHJB/AMEMBASSY BUJUMBURA 2902
RUEHLGB/AMEMBASSY KIGALI 1358
RUEHKM/AMEMBASSY KAMPALA 3433
RUEHNR/AMEMBASSY NAIROBI 1295
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 DAR ES SALAAM 000368 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR AF/E JLIDDLE, INR FEHRENREICH, AF/EPS 
COMMERCE FOR BERKUL 
TREASURY FOR RKLEIN 
 
E.O. 12958: N/A 
TAGS: EPET ENRG ECON PGOV PINR TZ
SUBJECT: TANZANIA OIL AND GAS EXPLORATION: OIL UNLIKELY, GAS NEEDS 
INVESTMENT AND GOVERNMENT ACTION 
 
REF: A: Dar Es Salaam 221, B: 2008 Dar es Salaam 444 
 
¶1. (U) Summary.  Natural gas in Tanzania could be exported or at 
least support significant domestic generation in the short to 
medium-term, but not without GOT action and investment in energy 
infrastructure.  Significant oil discoveries are unlikely but 
possible given offshore geological formations.  An unresolved 
political debate over revenue-sharing between Zanzibar and mainland 
Tanzania continues to hinder offshore exploration.  Given the 
current energy investment climate and GOT unwillingness to 
facilitate further investments, exploration will continue to be an 
intermittent process.  End Summary. 
 
¶2. (U) The search for oil and gas in Tanzania has progressed 
inconsistently over the past 50 years.  According to the website of 
the Tanzania Petroleum Development Corporation (TPDC), almost all 
multinational petroleum companies have been represented "at one time 
or another."  Much of the work has been geological, geochemical, 
gravity, airborne magnetometer, and seismic surveys conducted by 
companies granted exploration concessions or by the GOT through 
assistance from donor governments.  So far, investors have only 
drilled twenty-five wildcat exploration wells and eight development 
wells at Songo Songo and Mnazi Bay.  While major players such as 
Shell and Petrobras have concessions, much of the industry is 
currently comprised of minor independents struggling to generate the 
capital to keep their exploration plans moving ahead. 
 
Gas exports are viable, but constrained by GOT inaction 
--------------------------------------------- ---------- 
¶3. (U) When talking with industry experts, the real focus of 
exploration in Tanzania is natural gas.  With two discoveries at 
Songo Songo and Mnazi Bay already online, it seems likely, 
especially near the major river basins, that more discoveries are 
only a matter of time.  Halfani Halfani, the Director of 
Exploration, Production, and Technical Services at TPDC, detailed 
ongoing exploration activities indicating that gas was the likely 
output of all current exploration.  He was confident that Tanzania 
would soon produce enough gas to export in addition to supplying the 
domestic market.  Potential markets for Tanzanian gas include Kenya, 
Japan and South Korea.  According to Halfani, Maurel and Prom, a 
French exploration company, has already entered into discussions 
regarding the export of Tanzanian gas from a promising deposit near 
Mafia Island into the Korean market. 
 
¶4. (U) In 2008, Tanzania produced around 20.4 billion cubic feet of 
natural gas.  The first significant discovery in Tanzania was Songo 
Songo, south of Dar es Salaam, in 1974.  Managed by a consortium of 
investors known as Songas, Songo Songo produced 20 billion cubic 
feet (bcf) in 2008, up from 4 bcf in 2004.  The Songo Songo gas is 
piped to Dar es Salaam, where over half is used for domestic power 
production (up to 115 megawatts), a third is sold to local industry 
and private consumers, and close to 10 percent goes to the local 
cement factory that helped fund the pipeline from Songo Songo to Dar 
es Salaam.  Tanseco, the public power company, has asked Songas to 
double the gas output from Songo Songo in order to increase power 
generation; however, without doubling the processing units at Songo 
Songo and increasing the size of the pipeline this request is not 
feasible. (See ref A on Tanzania's power generation problems.) 
 
¶5. (SBU) Mnazi Bay, situated on the southern-most point of the 
Tanzanian coast, is currently an underutilized discovery.  In 2008, 
it produced close to 300 million cubic feet, all of which was used 
for domestic power generation for the southern coastal region. 
Artumas Group Inc., the concessionaire, predicts that the find at 
Mnazi Bay will yield at least 250 bcf - and possibly up to 4 
trillion cubic feet - over its lifetime.  According to Salvator 
Ntomola, the Country Manager, Artumas had planned for the past three 
years to build a 300 megawatt power plant that would feed power 
directly into the national grid. The sticking point has been lengthy 
discussions with the GOT, led by Tanseco, over pricing structures 
and ownership of the necessary, but very expensive, transmission 
lines.  Given the long delays, Artumas's board recently decided not 
to release any further funding until the Tanzanian office submits a 
GOT-approved plan of action.  Ntomola wants this project to happen, 
but without the GOT on board it appears unlikely.  Ntomola's new 
focus is on exporting the gas to Kenya through the port at Mombasa, 
either using ships capable of holding compressed gas or by extending 
the existing Songo Songo-Dar pipeline to Mnazi Bay and Mombasa. 
This proposal, which would require increasing the size of the 
 
DAR ES SAL 00000368  002 OF 002 
 
 
existing pipeline, would need GOT action that to date has been 
limited at best. 
 
Petroleum unlikely, but highly political 
---------------------------------------- 
¶6. (SBU) Possible petroleum discoveries, especially offshore near 
Zanzibar, are the big rumors in the industry.  Some local 
representatives for the smaller oil companies, such as Paddy Hoon of 
Heritage Oil, talk up the possibility of significant finds. 
Comparing Tanzania's offshore capacity to that of Nigeria, Hoon has 
tried to convince all who will listen that the big strike is only 
one investment away.  However, TPDC's Halfani believes there is no 
oil to be found near the islands.  Even if oil is found, he is 
deeply pessimistic that production would occur in the medium term. 
 
 
¶7. (U) Despite the lack of progress on oil exploration, and the real 
possibility that exploration will not expose viable fields, the 
potential for oil is at the center of a political debate between 
Zanzibar and the mainland.  Most Zanzibaris see themselves as an 
independent nation in free association with the mainland, forming 
the Union of Tanzania (ref B).  The issue of gaining exclusive 
control over any lucrative resources is a hot button for all 
Zanzibari politicians.  During the April 2009 session of Zanzibar's 
unicameral "House of Representatives," delegates from both parties 
unanimously adopted a resolution tabled by ruling CCM-Zanzibar 
stating that the laws establishing TPDC and oil exploration 
activities in the country were not ratified by Zanzibar's 
Parliament, so under the articles of the Union, TPDC's activities 
were not recognized in Zanzibar.  The resolution reiterated the view 
that the 1968 agreement on revenue-sharing between Zanzibar and the 
Union government did not apply to energy and asserted that 
Zanzibar's share from the mainland was too low.  It recommended that 
Zanzibar form its own TPDC equivalent and that any exploration in 
Economic Excusive Zones (EEZ) should be carried out jointly.  Any 
coordination would be handled through the national Vice President's 
Committee for Union issues, but the resolution stressed that energy, 
oil and gas as they existed in Zanzibar and its waters were not 
Union matters. 
 
¶8. (SBU) President Kikwete intervened on April 29, accurately 
dismissing the debate as hypothetical.  Indeed, David Reading, a UK 
consultant hired to advise both sides on how to share resources, 
pointed out in a press interview during the Zanzibar parliamentary 
debate that there were "slim chances" that oil or gas was 
commercially available in either Unguja or Pemba, the main islands 
of Zanzibar.  He said the area was costly to explore and that most 
international companies given access to the area had opted out.  In 
our opinion, the main effect of the dispute is to discourage 
investors from pursuing exploration activities, thereby reducing the 
possibility that oil revenues will exist to be divided. 
 
MUSHINGI