The State of Energy Security

Energy security in Tanzania can be viewed from the vintage point of oil and gas, and from electricity and biomass use (the latter discussed in the environment chapter at length).

With regards to electricity, short, medium and long-term challenges in the electricity sector, and their implications to energy access in the country are discussed earlier. They have energy security implications as well. Three general observations can be made about the evolving generation portfolio of Tanzania in relation to energy security: (1) the Master Plan for electricity through 2033, if implemented, implies that Tanzania will rely more on domestic energy sources to satisfy much of its energy demand, a positive step to enhancing energy security; (2) future expansion plans integrate fuels, albeit at around 5% of new installed capacity, but if current demand outpaces generation capacity enhancement, it is likely that fuel-based thermal energy will be part of the legacy, exposing the country to fuel-related energy security challenges; and (3) existing hydropower potential and the planned hydro capacity of 1/3 of the total through 2033 will introduce climate change related energy security vulnerabilities. These three factors, among others, will continue to shape the nature of energy security in the electricity sub-sector. Looking at the evidence from 2008/9 to 2009/140 (just one year) reveals that Tanzania’s energy sector is in a rapid dynamics (see Fig. 86). During this period, the share of hydroelectricity dropped by 8%, which is replaced by IPP capacity enhancement of 4% and thermal generation expansion of 4%. This shift reveals two facts: (1) the reliance on hydroelectricity will continue to introduce power shortage risks; and (2) that emergencies are likely to bring thermal back to the picture without sufficient reserve capacity from cheaper and cleaner energy sources.

Figure 86: Transition of the Tanzanian generation mix: 2008/9 – 2009/10.

Source: Based on data from EWURA, 2010.

Another factor determinant of energy security in the electricity sector is the infrastructure. Transmission and distribution losses are indicative of system resilience and efficiency. Transmission and distribution losses are estimated at 20% in 2008, and 22.5% in 2009, but the Master Plan for electricity foresees losses dropping to 13% by 2033 (see Table 35). However, losses at or above 1/5^th of generated power are quite high, quite costly and may add to the pressure to raising tariff on consumers, undermining energy affordability.

Table 35: Transmission and distribution losses actual (2008, 2009) and planned - Tanzania.

2008 2009 2010 2011 2012 2013 2033

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Transmission 5% 4.5% 4% 3.5% 3% 3% 3%

Distribution 15% 18% 16.5% 15% 11.5% 10% 10%

Total Losses 20% 22.5% 20.5% 18.5% 14.5% 13% 13%

Source: Power System Master Plan, Tanzania, 2009.

Moreover, at the institutional and market reform level, there are uncertainties. While Tanzania’s effort to reform the energy sector and bring private sector players is commendable, the reform remains to lock transmission and distribution largely within TANESCO, as well as much of generation, and integrates the private sector largely to bring in needed capacity, mainly in the form of thermal power. TANESCO’s financial solvency difficulties will continue to pose energy security challenges, as a financially strapped utility is less likely to invest in system upgrade, infrastructure development and large-scale investment schemes necessary to bring in enhanced power capacity to expand access and improve on security. Efforts to tackle these issues and subject the energy sector to annual review are positive attributes, but institutional and market improvements are likely to continue to pose policy challenges to policy and decision makers.

In terms of oil and gas, the oil and gas sub-sector is in a burgeoning and promising transformation. Petroleum exploration has been underway by more than 25 companies, and at least 12 exploration blocks have been identified (see Fig. 87). There are currently no oil discoveries in Tanzania, but exploration is on-going. The country depends entirely on imported refined petroleum products, since it has no operating refinery facility. Energy crisis in both 2006 and 2010 have led to integration of imported fuel for electricity, further undermining the state of energy security in the country. Reliance on reserve capacity of petroleum distribution companies and maintenance of no public strategic reserve system has further exposed Tanzania to price shocks in the international market and short-term fuel supply management challenges. TPDC is now tasked with establishment of a public strategic reserve of petroleum, and its operational and oversight framework.

Despite these challenges, three best practices of short-term petroleum supply disruption product quality management are noteworthy.

First, petroleum supply and domestic stocks are monitored through EWURA.

Petroleum stocks information is compiled twice per week, and when stock is low, the Ministry of Energy and Minerals and Tanzania Ports Authority are alerted for necessary measures (EWURA, 2010). Vessels arrival is monitored for EWURA by SGS Superintendence Tanzania Ltd. Monitoring stock levels and communicating to agencies to deal with supply disruption is a vital aspect of short-term supply disruption management tool.

Second, petroleum products standard is monitored by the regulator, EWURA, closely working with the Tanzania Bureau of Standards and stakeholders to combat adulteration. In this regard, frequent and random inspection is undertaken. Between May 2007 and June 2010, for example, 432 retail petroleum outlets were inspected, of which 210 outlets (48.6%) were found to be selling or possessing products below quality specification (EWURA, 2010). In terms of distribution facilities, 233 petrol stations, 24 depots and 40 fuel tankers across the country were randomly inspected during the same period, and 36% of retail outlets, 29% of depots and 55% of tankers were carrying products that were out of the Tanzania Bureau of

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Standards specification (Ibid). As significant and concerning as below quality oil products are, the fact that the trend seems to be on the decline, based on quarterly and semi-annually inspection assessment, is encouraging (see Fig. 88). However, more needs to be done to tackle the remaining high level of product adulteration, undermining availability of quality oil products. Regular sampling and monitoring of product adulteration is nonetheless an example of best practice to tackle the problem.

Third, the bulk petroleum products procurement by petroleum marketing companies in Tanzania is important in reducing prices and managing supply in the short-run. A Bulk Procurement of Petroleum Products report was prepared for Tanzania, and draft Bilk Procurement Rules and System Implementation Manual was prepared, presented to the Ministry of Energy and Minerals to issue appropriate regulations (EWURA, 2010). These developments are steps in the right direction to benefit from coordinated and bulk procurement that would afford better prices and coordinated supply. Members States in the Eastern Africa sub-region which have not instituted bulk procurement will benefit from such efforts.

Figure 87: Tanzania oil exploration activity by Blocks.

145 10 0

20 30 40 50 60 70 80 90 100

Q4 - 2006/07 Q1 - 2007/08 Q2 - 2007/08 Q3 - 2007/08 Q4 - 2007/08 Q1 - 2008/09 Q2 - 2008/09 Q3 - 2008/09 Q4 - 2008/09 Q1 - 2009/10 Q2 - 2009/10 Q3 - 2009/10 Q4 - 2009/10

Quarterly fuel quality - % below standard

Semi-annual fuel quality -

% below standard Source: Tanzania Petroleum Development Corporation.

Bulk procurement, viewed from broader sub-regional perspective offers an opportunity to benefit from large procurements even more, but will require clearing a series of regulatory and procedural hurdles across countries. Tanzania’s effort, as is Kenya’s, to push for bulk procurement is indeed a step in the right direction in terms of mitigating petroleum supply disruption.

Figure 88: Oil quality at retail outlets percent of sample found below standard.

Source: Based on data from EWURA 2010 Annual Report.

With regards to natural gas, remarkable discoveries have placed Tanzania in the sub-regional energy map. So far, five discoveries onshore and in shallow waters have been announced near Songo Songo Island, Mnazi Bay, Mkuranga, Kiliwani North and Nyuni. Songo Songo Island and Mnazi Bay fields are the only fields currently producing natural gas. The British Gas (BG) Group has discovered gas in Blocks 1,3 and 4 in the Mafia Depp Offshore Basin and the Ruvuma Basin. The Songo Songo gasfield is estimated to have 1.1 trillion standard cubic feet (TCF) in probable, possible and proven reserves and for the Mnazi Bay gas field the reserve estimates reach 2.2 TCF. The Government has raised overall gas reserve

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estimates at nearly 33 TCF of recoverable natural gas reserves, a point which led the Deputy Energy and Minerlas Minister, Mr. George Simbachawene to declare at the oil and gas conference in Dar es Salaam in October 2012 “these discoveries are an indication that Tanzania is now becoming one of the natural gas hubs and a new frontier in oil and gas exploration in the East Africa region and the world at large” (as quoted by Reuters on October 18, 2012). The US Geological Survey estimates that some 253 TCF off Tanzania, Kenya and Mozambique fueling prospects for more gas. Mozambique is also coming as a major player in the gas industry, due to large finds in on-shore fields. In Tanzania, BG Group, Ophir Energy, Royal Dutch Shell, Aminex Plc and Brazil’s Petrobras are in the gas exploration and development business.

The potential of the sizeable natural gas finds in Tanzania offer an opportunity to enhance energy security in the country, and in the sub-region. Natural gas has already entered electricity generation, and plans are to bring added capacity from gas-fired power plants. From 2004 through 2013, at least 886 MW capacity of electricity is sourced from gas (see Table 36), with plans to bring additional capacity post 2013 (see Table 32). Natural gas will effectively enhance energy security by displacing fuel with domestic gas in electricity and by directly supplying gas to industries as an alternative and feasible local energy resource.

The economic benefits of natural gas use in Tanzania are already significant. During 2009/10, 21.73 billion standard cubic feet (BCF) natural gas was consumed by thermal power generation plants, which is equivalent to 705.53 million liters of oil equivalent; and industry had consumed in the same year 3.78 BCF of natural gas, 92.07 million liters oil equivalent, leading to US$ 789.07 million savings in 2009/10 (EWURA, 2010). These gains are expected to increase as domestic gas displaced imported fuel from generation portfolio.

Table 36: Gas-fired generation in the short to medium term – Tanzania.

Plant Gas Added MW Year Installed End Year

Songas 1 (IPP) 42 2004 2023

Songas 2 (IPP) 120 2005 2023

Songas 3 (IPP) 40 2006 2023

Ubungo T 100 2007 2026

Dowans 1 (Rental) 35 2007 2008

Dowans 2 (Rental) 80 2007 2008

Aggreko (Rental) 44 2007 2008

Alsthom (Rental) 40 2007 2008

Tegeta New 45 2009 2030

Ubungo T New 100 2011 2031

Kinyerezi 240 2013 2033

Source: Power System Master Plan, Tanzania, 2009.

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What the gas sector development in Tanzania means to energy security enhancement of the Eastern Africa sub-region is however uncertain. Experiences from South Sudan and Uganda on oil sector development can be indicative to the gas industry in Tanzania. South Sudan exports its oil resources to import refined petroleum, therefore commoditizing oil while the State faces energy security challenges from imported refined products. The country has now announced two refineries to change this prospect and enhance local energy security.

In the case of Uganda, it is pushing refining capacity beyond domestic demand to help meet regional petro-products demand, potentially contributing to enhancement of energy security in the sub-region. Tanzania’s case can be informed by these experiences. Product-sharing agreements it enters with oil and gas companies will certainly place a constraint. Indications are that after feeding much of the domestic electricity, industrial and household demand, and perhaps some export capacity to the sub-region, through a 5-20% local market tapping of gas, the rest is likely to go to lucrative export markets in China, India and particularly Japan where the appetite for gas is growing super-fast. The sub-region will need to engage Tanzania to deal with systemic energy security challenges. Access to Tanzania’s gas, or converted electricity export are possibilities that require further policy engagement at the sub-regional level.