Purchase of natural gas in Tanzania

I am a chief operations officer of a company registered in a foreign jurisdiction. The company is mainly dealing with oil and gas. As a company, we are intending to establish a place of business in Tanzania for purposes of producing natural gas for domestic and export purposes. As a producer, are there restrictions in selling the produced gas to foreign purchasers? If yes, what are they and why are they imposed.

KG, Dundee

It should be noted out the outset that under Tanzanian law, a natural gas producer is not completely free to commit all production to foreign purchasers. The principal restriction is the domestic supply obligation under the Petroleum Act, Cap. 392 (the Act). A licence holder and contractor must satisfy the Tanzanian domestic market from their proportional share of production; the volume required for the domestic market not exceeding their share of profit oil or gas, and the applicable domestic volume is to be determined by agreement and on a pro-rata basis with other Mainland Tanzania producers. The Act also expressly requires the Minister responsible for Energy to maintain a balance between domestic petroleum supply and exports.

This restriction reflects Tanzania’s policy that exploitation of its petroleum resources should first safeguard domestic energy security and strategic domestic uses before production is committed for export.

In addition, section 125 of the Act gives the designated gas aggregator rights to purchase, collect and sell natural gas from producers. The aggregator is Tanzania Petroleum Development Corporation (TPDC), which is the National Oil Company, through its designated subsidiary. A producer wishing to sell to another person ordinarily requires the aggregator’s consent. Importantly, however, that exclusivity does not extend to natural gas preserved for export as Liquified Natural Gas.

It is critical to note that before accessing Tanzania’s petroleum sector for upstream petroleum operations, the company will need the applicable petroleum rights under the Act, that is, a contractual arrangement, in form of a Production Sharing Agreement (PSA), with the Government, TPDC and, depending on the project stage, an exploration licence followed by a development licence and production permit. Applications for upstream petroleum licences and permits are processed and regulated by the Petroleum Upstream Regulatory Authority (PURA). Nevertheless, it should be noted that all petroleum rights are vested in TPDC. It is therefore TPDC that applies for upstream licences on behalf of the contractor, upon completing contractual arrangements under the PSA.