Songo Songo project brings energy, hope to Tanzania

A group of investors working with the government of Tanzania has completed construction of the $260 million Songo Songo gas-to-electricity project, the first of its kind in sub-Sahara East Africa. The project - which includes an offshore gas field in the Indian Ocean, a gas processing plant, and a 229-kilometer (142-mile) pipeline to the Ubungo power plant and industrial users in Dar es Salaam, Tanzania’s capital and largest city - has begun providing vital low-cost electricity to the impoverished African nation of 38 million.

Before undertaking this project, Tanzania was largely dependent on expensive outside energy sources. Now, by producing its own natural gas to fuel a power generation plant, the country expects to save about $42 million annually, according to a World Bank estimate. Once additional pipelines, power lines, and other infrastructure are added, the project positions Tanzania as a potential exporter of natural gas and electricity to neighboring countries.

Gas was discovered in the late 1970s onshore and offshore Songo Songo Island, located in the Indian Ocean southeast of Dar es Salaam, but it was not believed to be commercially viable at the time. Today, Songo Songo’s reserves are estimated at one trillion cubic feet with a potential to produce 100 MMcf+d from its five producing wells - three offshore and two on Songo Songo island. In addition, there are other offshore basins with the same or greater reserve potential, according to several international O&G companies.

“Everyone knew there was gas there, but for various reasons - primarily political and economic - it was never developed,” said John J. Beardsworth Jr. of the US law firm Hunton & Williams, based in Richmond, Va. Acting with the World Bank and representing the government of Tanzania, Beardsworth was instrumental in structuring the deal that helped the country develop its own indigenous natural gas resources and bring electricity to its citizens.

The completed project, funded by the largest foreign direct investment in Tanzania’s history, allows the country to redirect resources previously dedicated to purchasing electricity.

“Money will be freed up for hospitals, schools, and AIDS prevention, among other needs,” said Beardsworth. “No longer will the government spend millions to import outside oil to generate electricity.”

Beardsworth’s law practice focuses on corporate and project finance and traditionally regulated industries of electricity, natural gas, transportation, and water - with an emphasis on projects in developing nations. He first visited Tanzania in the late 1970s when the Italian national oil company became interested in the gas fields off Songo Songo island and returned many times as he represented, first, the World Bank, and later the government of Tanzania in structuring the gas-to-electricity project.

“The significance of this project is that it shows that even with a downturn in the number of power projects being completed, there is still a continuing appetite within the investment community for attractive oil and gas projects in Africa,” said Beardsworth.

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The converted gas-fired Ubungo power plant, which began commercial operation in July 2004, supplies about 20 percent of the country’s current electricity needs and added capacity is planned in the near future.

The nation of Tanzania (map, top left) was formed in 1964 after a merger between mainland Tanganyika and the island of Zanzibar, which had become independent the previous year. Significant oil and gas reserves are believed to lie just off the coast in the Indian Ocean.
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Benjamin William Mkapa, the president of Tanzania, recognized Beardsworth’s efforts during an October 4, 2004, ceremony commemorating the project’s completion.

Gas gathering lines run from offshore wellheads to a gas processing plant
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The primary project investors are Houston-based Globeleq, an operating power company that focuses on emerging markets, and FMO, a development-finance institute with headquarters in the Netherlands. Globeleq is the majority shareholder, having acquired AES Tanzania’s interest in the project. AES Tanzania, a subsidiary of Arlington, Va.-based AES Corporation, previously purchased the majority stake from two Canadian firms, PanAfrican Energy Corp. (owned by Ocelot Canada) and TransCanada Pipelines International.

Songo Songo Island, about 140 miles southeast of Dar es Salaam.
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Larsen & Toubro of Mumbai (formerly Bombay), India, was awarded the lump-sum, turnkey contract for engineering and construction of the project - everything from onshore and offshore surveys to final commissioning and performance testing. In executing the project, L&T deployed its state-of-the-art IT systems, including 3-D plant modeling; advanced engineering and simulation software; enterprise resource planning; e-procurement; and modern communications facilities.

A private international consortium, Songas, has been established by Globeleq to own and operate the pipeline and related facilities, including a natural gas gathering system and processing plant on Songo Songo Island and the Ubungo power plant. Power from the plant will supply the national utility, Tanzania Electric Supply Company (Tanesco), under a 20-year agreement.

Globeleq owns 2,400 megawatts of generating capacity in Africa, Asia, and the Americas, and directly manages more than 75 percent of the generating capacity owned by the company, said a Globeleq spokesman. The company worked closely with the World Bank, the European Investment Bank, other partners, and the government of Tanzania to complete the Songas transaction.

Fighting poverty

Tanzania is one of the world’s poorest countries and is heavily reliant on foreign aid, with many of its people living below the World Bank poverty line. The per capita income is $290 per year, and the life expectancy for men is 42 years and 44 years for women - attributable in part to the AIDS crisis that has enveloped much of the African continent.

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Until this small offshore gas field was developed, the country had little hope of energy independence. Its main exports were agricultural - sisal, cloves, coffee, cotton, cashew nuts, and tobacco. Historically, around 90 percent or more of Tanzania’s energy needs are met by biomass, particularly woodfuel. Petroleum and electricity account for only eight percent of energy consumption, and coal and other sources for less than one percent.

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The country’s electricity supply has long been erratic because of the national grid’s reliance on hydroelectric power, which in turn depends on rainfall. The entire region is experiencing a decades-long drought, which has shrunk Lake Victoria to a 60-year low level, shutting down hydroelectric plants. This is why the gas-to-electricity project is a godsend.

The project had suffered considerable delay in implementation. Financial closing was finally attained in October 2001. Construction of the pipeline began in 2003 and was completed in May 2004. The first gas reached Dar es Salaam in July 2004, and the project began commercial operations that month.

The Songo Songo project will generate about 20 to 25 percent of Tanzania’s current peak demand for electricity and will be a huge boost to metropolitan areas, particularly Dar es Salaam. However, according to Science in Africa, an online science magazine, most Tanzanians live in rural areas and less than one percent of the population has electricity. The added power from the pipeline will not go to them - at least not in this stage of its development.

Brief history

The nation of Tanzania assumed its present form in 1964 after a merger between mainland Tanganyika and the island of Zanzibar, which had become independent the previous year. The country’s first president, Julius Nyerere, nationalized factories, plantations, banks, and private companies and tried to achieve self-reliance by creating a network of cooperative farm villages.

A decade later, the country was in economic chaos despite financial and technical aid from the World Bank and sympathetic countries. The economy had collapsed due to inefficiency, corruption, popular resistance to Nyerere’s socialist agenda, and the rising price of imported petroleum.

Nyerere clung to power until his resignation in 1985. His successor, Ali Hassan Mwiniyi, attempted to increase productivity and attract foreign investment and loans by dismantling government control of the economy. This policy has been continued by the current president, Benjamin Mkapa, who was elected in 1995 in the country’s first multiparty elections. Elected as an anti-corruption crusader, Mkapa is credited with being the driving force behind Tanzania’s extensive economic liberalization, which has been well received by the International Monetary Fund and the World Bank.

According to the Energy Information Administration, foreign oil prospectors have invested more than $293 million searching for oil in Tanzania without success. Seeing oil as a key to economic development, the government continues to encourage oil exploration in the country. Experts have long suspected that there are considerable hydrocarbon deposits off Tanzania’s coast.

Tanzanian President Benjamin William Mkapa (seated, center) and Robert Hart (seated, right), president and CEO of Globeleq, were honored guests at the dedication of the Ubungo power plant, now fueled by domestically-produced natural gas.
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The first offshore exploration well in Tanzania was drilled by BP in the coastal basin in 1954 and encountered oil and gas shows. Six out of seven wells drilled at the time and over the next few years encountered oil or gas shows, two being potentially commercial gas discoveries. However, a lack of appropriate infrastructure, an inhospitable political regime, and the ready availability of low cost oil elsewhere left Tanzania and East Africa as a whole on the sidelines of the oil and gas industry.

Aerial view of the Ubungo power plant, the final stage of the $260 million Songo Songo gas-to-electricity project.
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Royal Dutch/Shell and Global Resources have expressed interest in several offshore blocks, and Aminex - a British oil company - has begun test drilling in two locations offshore. The test well is close to the Songo Songo gas field and the nearby island of Okuza. The drilling will target both oil and gas, and Aminex claims to have right of access to the Songas pipeline in the event of a gas discovery.

Given the size of Tanzania’s coastal basins and the small number of wells drilled there to date, the area remains very immature in exploration terms and its geological potential is still largely untested.

At present, there are two oil refineries in the region - one in Kenya and one in Tanzania. The Kenyan refinery in Mombasa, on the coast just north of the Tanzanian border, has crude processing capacity of 90,000 b/d, and the Tanzanian refinery in Dar es Salaam has 14,900 b/d. The small Tanzanian refinery was recently closed, but continues to act as an oil storage depot.

Now that the Songo Songo gas-to-electricity project has been completed, the five liquid fuel turbines at the 112-megawatt Ubungo power plant have been converted to gas, and the power generated by the plant is being fed directly into the national grid.

Songas has purchased two additional turbines with a combined 65 megawatts of production capacity. Sadly, a ship carrying one of the turbines destined for the Ubungo plant was grounded offshore and the turbine lost. A replacement turbine has been ordered.

In addition to the Ubungo generating facility, the Songo Songo pipeline supplies gas to the Tanzania Portland Cement Company and the Kioo and Tanzania breweries. There are another 17 potential industrial users of natural gas in the Dar es Salaam metropolitan area. Other beneficiaries include more than 40 communities along the 142-mile pipeline.

Robert Hart, CEO of Globeleq, had this to say about the successful completion of the Songo Songo gas-to-electricity project: “Songas is a tribute to the commitment of people who had the vision of gas-fired generation in Tanzania and took ownership to achieve that vision. There were so many reasons for this never to happen, but people believed enough, stayed with it, and made the vision a reality.” OGFJ

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