Globeleq’s Tanzanian Unit Gas Output May Drop as Program Ends

Gas output at Globeleq Inc.’s Tanzanian unit may drop 30 percent in December after a temporary program to increase daily capacity ends, said Sebastian Kastuli, commercial manager at Songas Ltd.

Production may decline to 70 million standard cubic feet a day, which is the company’s installed capacity, from 105 million standard cubic feet, known as mscf, Kastuli said in an interview Oct. 17 in Dar es Salaam, Tanzania’s commercial hub. The company had boosted output through a process called re-rating, which involves modifications to equipment such as compressors to give a temporary boost to existing capacity.

“We are not sure if re-rating may continue,” he said. The government is considering whether to extend the plan, since re- rating is “time-bound and should be done as a short-term strategy,” he said.

Songas owns a gas processing plant on Songo Songo Island and a 225-kilometer (140-mile) pipeline from the plant to Dar es Salaam. The company began re-rating in 2009 after the Tanzanian government, which holds 38 percent of the company, rejected a permanent expansion to double output, Kastuli said.

The government declined because the 20 percent interest rate being sought for the $120 million debt required was too high, according to Kastuli. The state asked Songas to get debt with interest of less than 4 percent, and ensure the expansion didn’t dilute their shareholding, he said.

‘Expansion Expensive’

The Songas expansion option is “expensive,” Michael Mwanda, chairman of the state-run Tanzania Petroleum Development Corp., said by phone on Oct. 19. The government plans to build its own pipeline from Songo Songo to Dar es Salaam, he said

“There will be a shortfall of gas for sometime after re- rating ends, but we think government-owned infrastructure at a cheaper cost is a better option,” he said.

The anticipated drop won’t affect Songas’ power generation business in Dar es Salaam, where they transport the gas to produce 180 megawatts of electricity that is all sold to the state-controlled Tanzania Electric Supply Co.

“We have an amount of protected gas, up to 70mscf a day, and we use about 45mscf a day to produce the 180 megawatts, and sell some to Tanzania Portland Cement Co., with which we have a supply contract,” Kastuli said.

Pan African Energy Ltd., a unit of Orca Exploration Group Inc (ORC/A), operates Songas’s plant, and pays processing and transport fees, according to Kastuli.

To contact the reporter on this story: David Malingha Doya in Dar es Salaam via Nairobi at pmrichardson@bloomberg.net.

To contact the editor responsible for this story: Paul Richardson at pmrichardson@bloomberg.net.

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