Mozambique enters a critical period for LNG

US independent Anadarko and Italian player Eni set to take decisions on huge projects in the coming months despite difficulties of operating in the country

The next few weeks and months are set to be highly significant for Mozambique’s bankrupt economy as the final pieces of a complex economic jigsaw puzzle are put in place to underpin final investment decisions on tens of billions of dollars worth of liquefied natural gas projects operated by Italy’s Eni and US independent Anadarko Petroleum.

The hype of a few years ago, when plans were in hand to fast-track exploitation of the huge gas resources off northern Mozambique — startup dates of 2018 and 2019 were bandied about — has given way to a much more realistic assessment of schedules.

Despite these project delays, it is easy to forget that it has been only seven years since Anadarko arrived in the frontier Rovuma basin and drilled its play-opening Windjammer gas discovery.

Since then, a combined 190 trillion cubic feet of gas resource has been found by Anadarko in Area 1 and Eni in Area 4.

The latest data from the National Petroleum Institute, Mozambique’s upstream regulator, estimates that 100 Tcf of these resources are housed in Area 1 and 87 Tcf in Area 4.

 

Feedstock

Almost all this gas is earmarked as feedstock for multiple onshore and offshore liquefied natural gas projects, although the government has demanded that specific volumes are used in the domestic market for power and to create new industries.

Government administrators — used to working in a hydrocarbon backwater aside from Sasol’s low-profile onshore Pande-Temane gas asset — have lacked the institutional capacity to effectively handle the demands placed on them by gas companies keen to see their LNG projects expedited.

Eduardo Alexandre, an adviser to the Ministry of Mineral Resources & Energy, says capacity building of institutions is one of the challenges faced by the government.

“We still do not have the necessary experience to manage natural resources. We still face the challenge of creating internal capacity,” he says.

A lack of oil and gas industry knowledge among politicians is also concerning, says Hermenegildo Munjovo, executive director of the Institute for Multiparty Democracy, a Mozambican non-governmental organisation. “I must say that [the preparation of political institutions] is still very poor and we feel that political parties and parliament can do even more,” he says.

These obstacles have been compounded by the oil price crash of 2014, a renaissance of the seemingly vanquished Renamo political movement, a collapse of the value of the metical, rising food costs, rampant inflation, social unrest and ever-present corruption.

 

Gas bonanza

The bulk of Mozambique’s population were poor when this gas bonanza was discovered and remain so now, but the elite, with an eye on rich pickings, continue manoeuvring to get a slice of the action through, among other avenues, opaque land deals and the creation of service companies with murky ownership. Financial malfeasance in government appears rife, exemplified by last year’s discovery of $2 billion worth of off-balance sheet government debt, which led to the International Monetary Fund stopping any further loans to President Filipe Nyusi’s administration until that matter is fully addressed.

“The scale and scope of corruption in Mozambique are cause for alarm,” the World Bank said last month.

“On a daily basis, citizens experience petty administrative corruption at police checkpoints, health institutions, schools and government offices.

“Even more serious grand corruption and state capture exist at higher levels of government. These involve the pilfering of substantial sums from the public coffers and fostering damaging misconduct and abuses” such as favouritism, nepotism, conflicts of interest, insider dealing and opaque electoral decisions.

“More troubling,” said the bank, “are the allegations of links between corrupt government officials and organised crime.”

 

Revenues

Because the government will only start to receive export revenues in around 2030 (LNG exports are due to start in 2023) it needs to regain the IMF’s confidence — and boost its credit rating — while at the same time trying to secure loans from other sources, including China.

Nevertheless, despite these severe financial problems, the perception of Mozambique as a good place to invest will come from final investment decisions for its multiple LNG schemes and the soon-to-be formalised entry into the country of top-drawer investor ExxonMobil.

The US supermajor, renowned for planning decades into the future, views Mozambique as the new Qatar and has significant support from the US government, whose new embassy in Maputo will reputedly be its largest in Africa.

Mineral Resources & Energy Minister Leticia Klemens painted a cautiously optimistic picture of Mozambique’s future at CWC’s Gas Summit in Maputo last month.

She stressed that “the development of the oil and gas industry will be critical to the growth of our economy” while at the same time highlighting the need for strong local content legislation in order to create jobs and develop skills.