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African nations preparing to tap natural gas reserves

U.S. Treasury Secretary Jack Lew was in Tanzania for meetings with government officials and American businesses operating there, and while none of these events were open to the press, rest assured the East African nation’s new natural gas reserves will be a hot topic.

Lew talked about Tanzania’s plans to review all of the contracts that allow for oil and natural gas exploration and production. Energy and Minerals Minister Sospeter Muhongo says the government wants to set up a sovereign fund like Norway’s and ensure the country get its fair share of revenues. Statoil, Exxon Mobil and BG Group have found 50 trillion cubic feet of natural gas in Tanzanian waters.

Needless to say, the companies that made those discoveries – and their home governments – are concerned about any move to renegotiate terms. Tanzanian officials must also be careful if they want the $20 billion of investment needed to exploit the nation’s reserves. Tanzania was founded as a socialist government, and still tilts to the left, so this will be a defining moment in that nation’s history.

International oil companies have made major natural gas discoveries offshore from Kenya down to Mozambique.  There are also natural gas deposits off the coast of Somalia, but that nation is too unstable for exploration.

These discoveries could potentially transform the economies on the west side of the Indian Ocean. The International Energy Agency estimates Mozambique alone could see $115 billion of investment, and the Banco Nacional de Investimentos has set up a venture capital fund for local businesses.

Producers in Africa plan to liquefy the majority of the gas produced from these Indian Ocean wells for export, either through the Suez Canal to Europe or to South Asia. Either way, the production combined with exports from the United States will change the global natural gas market. What is unclear is whether the glut of LNG will drive prices lower, or if low prices will spur the adoption of natural gas as a transportation fuel.

Either way, it’s important to remember that the United States isn’t the only place in the world producing more natural gas.

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