Tanzania gas plan gives priority to domestic use over exports

* New (KOSDAQ: 160550.KQ - news) energy policy draft measures

* East Africa gas finds attracting companies

By Fumbuka Ng'wanakilala

DAR ES SALAAM, March 6 (Reuters) - Tanzania will give priority to domestic use of its natural gas resources over exports under energy policy draft measures seen by Reuters on Friday.

The measures were approved by new energy and minerals minister George Simbachawene.

As in other African countries, a debate in Tanzania has focused on how much of its hydrocarbon reserves should be used locally and how much can be exported.

East Africa has become one of the world's most sought-after oil and gas regions with a string of vast discoveries attracting foreign companies seeking new sources to supply energy-hungry Asian markets.

Tanzania's new rules reinforce a natural gas policy passed by cabinet in 2013. That policy proposed tough conditions on foreign companies and assurances that the domestic market would take priority over exports.

However, the natural gas policy has yet to be passed into law by parliament.

Tanzania is estimated to have 53.28 trillion cubic feet (tcf) of gas, and has said that could rise four-fold over the next five years, putting it on par with some Middle East producers.

Its gas policy also seeks to address a standoff between Tanzania's mainland and its semi-autonomous islands of Zanzibar regarding the sharing of any future hydrocarbon revenue.

"Ownership of oil and gas resources is vested to the people of the Tanzania mainland, and must be managed in way that benefits the entire society," according to the latest draft measures.

The revenue-sharing dispute has prevented Royal Dutch Shell (Xetra: R6C1.DE - news) from beginning exploration on four blocks off Zanzibar or selling stakes in its exploration rights.

Ahmed Salim, senior associate at consultancy Teneo Intelligence, said in a note to clients on Friday said one focus was the extent to which prioritising the domestic market might affect natural gas legislation.

"Draconian measures such as export restrictions should not be expected, but regulatory frameworks such as strong local content policy should be anticipated," Salim said.

British company BG Group (LSE: BG.L - news) , together with partners Exxon Mobil (Swiss: XOM.SW - news) , Statoil (Xetra: 675213 - news) and Ophir Energy (LSE: OPHR.L - news) , plans to build a two-train LNG export terminal, expected to start operating in the early 2020s. A final investment decision is set for 2016 at the earliest. (Editing by James Macharia and Jason Neely)