Gas deal to seal Kenyatta legacy, fix trade disputes

Tanzania and Kenya have agreed in principle to start trading in natural gas, with officials hopeful that the deal will help end the persistent trade spats between the two countries.

The gas deal formed part of the discussions between Tanzanian President John Magufuli and Kenya’s Uhuru Kenyatta during his recent two-day visit to the country.

The announcement by State House Nairobi came even as the two neighbouring countries remained locked in disputes that have seen a significant drop in trade volumes.

The deal for Tanzania to sell liquefied natural gas (LNG), which has been on the cards for more than a decade, is expected to power one of President Kenyatta’s pet legacy projects — manufacturing — at a time when the country is facing at the potential loss of a significant energy project, the Lamu coal plant.

The project has run into trouble after a Nairobi court ruled that the environment watchdog Nema irregularly issued its licence.

An even cheaper and bigger nuclear power plant has been shrouded in uncertainty over security, environmental and implementation concerns.

Big 4 Agenda

The Tanzania LNG deal would therefore come in handy as time runs out for President Kenyatta to cement his legacy by implementing the Big 4 Agenda, which comprises manufacturing, affordable housing, universal healthcare and food security.

A technical team from both countries is working out the details for implementing the deal.

Andrew Kamau, Principal Secretary in Kenya’s State Department of Petroleum said that work has started.

“We need gas to generate power and drive our manufacturing sector,” he said. “The technical officers from the two countries will start meeting this month to look at the finer details of this agreement.”

Those details include pricing, volumes of gas, policy framework and the infrastructure, including a pipeline.

Infrastructure investments

Whereas crude oil is relatively easy to transport, gas requires huge infrastructure investments. It therefore remains to be seen how Tanzania will move to facilitate its exports, especially with regards to infrastructure funding.

But President Magufuli is upbeat. He said he was considering his neighbours before exporting to countries farther afield.

"We have natural gas — a lot of it. Instead of Kenya importing gas from outside East Africa, they should buy from here,” said President Magufuli.

President Kenyatta, who went to Tanzania with a conciliatory message after a Kenyan MP was accused of making xenophobic utterances against Tanzanian traders in his constituency in Nairobi, expects to see warmer diplomatic relations with Dar es Salaam amid raging trade disputes over rules of origin, non-tariff barriers and quality of products. These have also affected regional integration, sowing mistrust between partners.

Already, there is a planned meeting of officials from both countries to discuss these issues in the coming weeks.

The gas deal is not new, though. It has been in the works for more than a decade.

Gas pipeline

In 2006, the EAC identified the need to extend a gas pipeline from Dar es Salaam to Tanga, Zanzibar and Mombasa.

Tanzania’s Songas is the largest gas-fired power station in East Africa with an installed capacity of 190MW, using gas from the offshore Songo Songo reserves.

A feasibility study was commissioned in 2009 and completed two years later, recommending either the establishment of a special purpose vehicle jointly owned by Kenya and Tanzania but operating on a commercial basis, or a public-private partnership in which the two governments would offer a concession on a design, build, finance, and operate basis, to a private company. This is expected to form the basis of the discussions in the coming weeks.

Tanzania has 57.25 trillion cubic feet of natural gas reserves, with nearly all of the resource produced used to generate electricity.

The country plans to start selling the gas to international markets and Kenya stands to be one of the first beneficiaries.

According to a study by Phoenix Research Publishers released last year, natural gas contributed about 625.5MW of the total power installed capacity (1,450MW) in Tanzania in 2017.

Tanzania’s electricity sector started using natural gas in July 2004. The country saved more than $4.4 billion in using the natural gas to March 2016, according to Phoenix researchers.

Going 'green'

Kenya’s importation of natural gas would boost the country’s efforts to go “green” by investing in the generation and transmission of cheaper and reliable renewable energy sources by 2020.

Currently, 70 per cent of Kenya’s installed electricity capacity comes from renewable sources, with more than 40 per cent of the generation output being geothermal.

Last year, President Kenyatta promised to shift the country to 100 per cent green energy by 2020 by scaling up investment in renewable sources.

But with the planned regional power exchange programme, the Eastern Africa Power Pool delayed by construction of transmission lines and the court stopping the implementation of a 1,050MW coal-fired power project in Lamu, the natural gas deal appears a silver bullet to Kenya’s industrialisation drive.

But the delayed negotiations between the government of Tanzania and multinationals —Equinor, Royal Dutch Shell Plc and Ophir Energy Plc, own gas blocks has caused some players to scale down activities in the country and start eyeing operations in other countries.

The earliest the gas may be available is 2022.