Tanzania has vast deposits of natural gas and coal. The looming energy transition will potentially have significant economic impacts on fossil rich countries and potential new producers such as Tanzania.
By Moses Kulaba, Governance Analysis Centre
The urge to curb Climate Change is here, and energy transition to cleaner energy is coming. These will affect countries differently. Fossil rich countries stand to lose most as countries transit from fossil fuels to clean energy. With the Russia-Ukraine war, current oil producers may enjoy a windfall benefit in the short term, but long-term demand cannot be guaranteed. Fossils such as new oil and coal could remain stranded, as investments cut back. Yet, the energy transition also provides a potential opportunity for countries with viable deposits and potential suppliers of natural gas, if gas will be considered a clean source of energy, relevant for driving countries energy mix in the midterm and longer term.
With vast deposits of Natural Gas, so far discovered along its shores, Tanzania could benefit from the energy transition. At about 57 trillion cubic feet (tcf) Tanzania’s deposits are massive and considered of high quality, with low carbon. However, this will be dependent on whether the global energy trends and discourse on energy transition can generally reach a consensus that gas is a clean source of energy, investment can be attracted, infrastructure can be developed and both domestic and international markets can be assured. Determining the potential for use of natural gas in achieving the country’s energy mix targets and securing its energy security will be key. Defeating international competition from established players such as Qatar and Algeria and new potential large producers such as Mozambique will equally be essential. If the global climate change movement reaches consensus and declares gas as a fossil fuel and polluting source, this will render Tanzania’s gas reserves to remain stranded.
The International Oil Companies (IOCs) interested in Tanzania’s gas are still optimistic that the project will take off. Although the over the past year’s negotiations were slow, the IOCs have not left, and this gives some hope that the Country could somehow navigate around the sensitive climate agenda and deliver its gas before 2030. The risks are there, and the negotiations for the development of the Liquefied Natural Gas (LNG) project in Mtwara must move faster before the gas is locked underground.
Tanzania’s coal as a stranded asset?’
Tanzania has vast deposits of coal. Tanzania’s coal is considered one of the best grades in the world. With the war raging in Ukraine over the past months, Tanzania has experienced a record boom in its exports to Europe since March 2022.
Globally, there has been an upsurge in the demand and prices for thermal coal reached above $400 per tonne up from $176 per tonne last year and around $75 in 2020. Europe is willing to pay more than twice the price for coal last year. This therefore gives Tanzania the opportunity to exploit its coal and benefit in the short-term demand, with or without totally losing out before a coal carbon future.
According to Mr Rizwan Ahmed, the managing director of Tanzania based coal miner Bluesky Minings and Jan Dieleman, President of Cargill Ocean transportation division, as European countries look everywhere, including far places for thermal coal. They are willing to pay twice the price and the Tanzanian suppliers plan to ramp up its production and double its exportation during this window.
According to the Mining commission and reported by Reuters and the Citizen Newsapers, Tanzania expects to double its coal exports this year to around 696,773 tonnes while production is expected to increase by 50% to about 1,364,707 tonnes. Tanzania-based miner Ruvuma Coal had so far, exported at least 400,000 tonnes of coal via a trader to countries including the Netherlands, France, and India since November 2021, as per trade data reviewed by Reuters. Since November 2021 when Mtwara launched its first ever coal shipment, up to 13 vessels of coal had been loaded up by September 2022.
Tanzania has hinged its development pathway to an industrialised nation on harnessing its coal and gas potential. The two consecutive Five Year National Development Plans (2015-2020 and 2021-2026) identified the Natural Gas and Coal projects as strategic projects to deliver the country onto its development goals and to a Middle-Income Country. The project revenues and increasing access and supply of energy through to gas to electricity.
The government is considering building a railway that would link the coal-producing Ruvuma region to Mtwara, according to the acting executive secretary of the Mining Commission, Yahya Semamba.
Mitigating climate change concerns and the steadily moving trajectory towards energy transition away from fossil-based energy sources however offers a dilemma whether the government can achieve these objectives.
Tanzania’s development dilemma in the context of energy transition
In the wake of the looming energy transition to clean energy, the rekindled interest in coal because of the Russia-Ukraine war may not be guaranteed in the longterm. The war has accelerated interests in Africa’s thermal coal and gas but at the same time it may accelerate the energy transition in Europe as governments look for other cleaner alternatives including heavily investing in renewables to secure their cleaner future.
The government therefore needs to balance its excitement over bumper coal exports and use the extra revenues from the booming coal exports to invest in a cleaner energy system which will guarantee its country a place a clean energy future.
Securing financial investment in coal mining, and the market demand for coal, will be challenging in the future, as most (financial) institutions are now advocating for clean energy and sustainable finance. Indeed, according to the International Energy Agency (IEA) petroleum companies are the current leading investors in research and development for clean energy. They don’t want to be locked out of the future and are spending their revenues carefully and locking into future energy markets with diligence.
Therefore, if the government of Tanzania still wants to benefit from its coal resources, it will need to take swift action to allow its extraction. Or, if it wants to participate in the energy transition, it will be compelled to leave its coal as a fossil fuel stranded in the ground. A tight policy choice that government may find difficult to partake. A divesture in investment from coal by large investors could cause potential disruptions in investment flows to Tanzania as a new producer, disrupt development projections.
Moreover, Tanzania is a signatory to international climate change obligations such as the UNFCC (1996) and Paris Agreement on climate change (2018), whose it must oblige. According to the Nationally Determined Contribution (NDC) Tanzania has committed to reduce green gas emissions economy wide between 30%-35% relative to the business As Usual (BAU) Scenario by 2030[1]. Tanzania has committed to promoting climate resilient energy systems and exploring options for energy diversification. By doing so, Tanzania must balance its development imperative and climate change obligations. These will require political will, resources, and preparation. The government will also need to harmonise its NDC targets with the targets of its National Energy Systems Master plan which seek to increase the off take of gas to generate power into the national grid as part of the National energy mix.
Further, Tanzania is facing several challenges related to weak institutional, financial; poor access to appropriate technologies; weak climate knowledge management, inadequate participation of key stakeholders, and low public awareness which have significantly affected effective implementation of various strategies, programs, and plans[2]. The opposing voice against gas and coal is getting louder and this may have an impetus on whether these g projects move on. Government will have to address these moving forward
The energy transition debate therefore offers a potential dilemma for Tanzania. As alluded above, Tanzania is a potential supplier of critical minerals needed for the clean energy transition at the global level. But also, a significant new producer of natural gas and fossils such as coal.
[1] URT: Nationally Determined Contribution, pg
[2] URT: Nationally Determined Contribution, pg3