Along Africa’s resource-rich eastern coast, the promise of gas-fired prosperity is wafting into an uncertain future.
Half a decade ago, Tanzania and Mozambique were hailed as two of the world’s most promising natural-gas frontiers, perfectly positioned to fuel Asia’s industrial boom.
Today, these poor nations are paying the price for years of government inaction, as a prolonged slump in gas prices defers their economic transformation indefinitely.
Tanzanian officials say it will be a decade before an estimated 55 trillion cubic feet of gas is pumped and sold; energy executives say that timeline is wildly optimistic. In Mozambique, where energy companies believe three times as much gas lies offshore, production originally set to start this year may not begin until 2020.
“We have seen companies unable to fulfill their obligations, because the oil prices are so low,” said James Mataragio, director general of state-owned Tanzania Petroleum Development Corp. “That’s dragged everything down. It’s tough.”
Gas prices have rebounded somewhat recently along with other commodities. The price for a million British thermal units of natural gas on Monday was about $2.16, up from a March low of $1.64 but far short of early-2014 averages of more than $4.
When Halliburton Co. arrived in Dar es Salaam in 2011, the oil-services giant splashed its logo across an upmarket building it leased with spectacular Indian Ocean views. A few months ago, Halliburton moved to the first floor of a quiet shopping mall as it scaled back operations.
Government officials said they have been told the company is suspending most operations and keeping just a few administrative staff members in Tanzania.
A Halliburton spokeswoman said the Houston-based company continues to operate in the country but has “adjusted business to match current market conditions and our customers’ needs.”
Tanzania’s centerpiece oil-and-gas legislation stalled for four years, before finally being approved a few months ago, more than a year into the gas-price slump.
One major energy firm in Tanzania spent hundreds of thousands of dollars relocating expert staff to Dar es Salaam three times in the course of 2014 and 2015, only to repatriate them because the delays meant they couldn’t start work, an employee said. He asked to remain anonymous because his company is now back at the negotiating table with the Tanzanian government.
Tanzanian President John Magufuli in January broke a yearslong deadlock to secure land for a liquefied-natural-gas plant near Dar es Salaam. In March, Dubai-based Dodsal Group said it had verified new onshore reserves near Dar es Salaam worth $8 billion at today’s gas prices.
Mr. Mataragio said negotiations over how to build and operate the terminal with companies including Exxon Mobil Corp., Royal Dutch Shell PLC and Ophir Energy would take 18 months. Company representatives said it could take three years.
Ahmed Salim, an analyst at the consultancy Teneo Intelligence, praised Tanzania’s president for trying to bring the gas deposits to market more quickly. “But the important question remains,” he said, “Is it too little too late?”
To be sure, the countries’ economic outlooks remain relatively strong. The International Monetary Fund expects growth in Mozambique and Tanzania to be more than 6% this year—twice that of its neighbors—although that pace is slower than in recent years and partly reflects the carry-over effects of the $30 billion in foreign investment that flowed in over the past five years.
Tanzania may be better placed to manage this waiting period: It didn’t borrow against future gas earnings and its new government is cutting spending and fighting corruption. The policies should support other sectors including agriculture, while the building blocks for the gas industry are put in place.
Mozambique has been hit harder because the government made big bets on the gas boom that are now backfiring dramatically.
Anticipating a windfall, the government borrowed billions. In 2014, as gas prices started to drop, Mozambique saw a 20% plunge in foreign direct investment, according to United Nations Conference on Trade and Development data. Its debt-to-gross-domestic-product ratio jumped 30 percentage points in three years to 87.4% currently.
Some of the money was spent on specialized vessels to patrol offshore gas fields. The idea was to repay the loans without anyone noticing, when the gas revenue arrived. But the slump in gas prices has meant that revenue is delayed, and the secret loans haven’t been repaid. The patrol boats are moored idly in Maputo, the capital.
Rents there have plummeted at the hilltop villas favored by foreigners who drove a recent building boom. Saudi-based Red Sea Housing Services Co. said that after building a few hundred beds of housing for gas-industry workers, plans for much larger accommodations worth tens of millions of dollars are on hold.
Majors Anadarko Petroleum Corp. and Eni SpA say they remain committed to their investments there, but work on their projects is stalling.
Eni said its Mozambique find “is one of the biggest discoveries in Eni’s history and one of its main projects in portfolio,” although it added it was lowering its share in it as part of a broader strategy.“Oil and gas will come back but it’s probably one of the deepest troughs we’ve been in in my lifetime,” said Mark Sumner, Red Sea’s president for Africa.
Anadarko said it was “working hard to put in place a set of agreements with the government, [which]will provide the foundation for definitive sales agreements with LNG customers” and “is strongly committed to developing the project.”
In Mozambique’s sunbaked harbor of Pemba, once touted as a gas-pumping boomtown, some companies are going bust.
“There’s no money in the market,” said Julio Sethy, who expanded his trucking business only to see demand plummet last year as Mozambique’s metical currency crashed. “We are facing a big economic crisis.”
Celmira da Silva, governor of the province that covers Mozambique’s most gas-rich waters, said the slump is a challenge to build factories and modernize cashew and cotton farms that can see her region through future downturns.
“Without other products and exports we will not be able to provide jobs for anyone,” Ms. da Silva said.
John Fabian, 28, left Mozambique’s hinterlands to study economics and landed a job a few years ago as a bank teller in Pemba.
But now many businesses in the humid would-be boomtown are closing down. Mr. Fabian lost his job in November. Providing for his wife and 3-year-old daughter has been a daily struggle ever since.
“There’s no work here,” the 28-year-old said on a recent afternoon he was whiling away at the beach. “I’d go anywhere for a job.”
This article was published by the Wall Street Journal. Credit goes to Journalists Matina Stevis in Dar es Salaam Tanzania and Patrick McGroarty in Pemba in Mozambique.