OPINION: Omar Mitha, economic advisor to Mozambique President Filipe Nyusi has spelled out the huge economic issues that financially poor but hydrocarbon-rich countries in Sub-Saharan Africa must deal with as the energy transition begins to bite.
Mozambique’s mighty gas fields were discovered a decade ago in the Rovuma basin, when global warming was low on government agendas and pandemic viruses were an arcane area of study.
Fast-forward to 2020, and the energy world has changed radically. Investors are piling money into renewables and exiting fossil fuels, while Covid-19 has ravaged wealthy and weak economies alike, plunging many deep into debt and denting demand for oil and gas.
The transition, and the clarion call to fund only renewable energy schemes, will limit the scope for a poverty-stricken country such as Mozambique to derive vital revenues from its 180 trillion cubic feet of gas resources.
While Maputo is not ignoring renewables, these green measures will create little money for state coffers badly depleted by cyclones and an Islamist insurgency.
The government’s only option to generate significant funds is to export liquefied natural gas. “We are putting our bets on (LNG) because we are a poor country and we need the cash from royalties,” said Mitha, at last week’s virtual Africa Oil Week.
“We need to change the game in terms of our budget because we have to build schools, roads, hospitals and enhance the wellbeing of population — this can only come if we (commercialise) gas.”
For years, Mozambique has exported gas by pipeline to South Africa from Sasol Petroleum’s Temane and Pande fields, a project made bankable by the neighbour's creditworthy offtakers.
Total’s Mozambique LNG project in Cabo Delgado provinceproceeded because financially solid buyers in Asia signed up to long term contracts, while ExxonMobil’s Rovuma LNG scheme is also focused on Asian buyers.
But as pressure builds on industrialised countries to reduce their appetite for fossil fuels, demand for LNG could whither.
Some say Maputo should therefore look to regional gas buyers in the southern Africa or use more gas domestically.
However, Mozambique's neighbours are all below investment grade, while its domestic market is small and its state-owned power utility is heavily indebted.
The uncertain future of LNG could soon impact on expansion plans beyond the first two trains at both Mozambique LNG and Rovuma LNG.
As Mitha puts it: “In the current market, we need to figure out how we can find new buyers. We need to find out if the long-term (sales) contracts we have signed for (Mozambique LNG) will be renewed and how that’s going to play out.”
Mitha openly wonders if Total and ExxonMobil will remain in Mozambique: “They might re-think and re-look at their strategies and say can we go to a better place where the rate of return is higher.”
If LNG falls from grace, how could Mozambique continue to commercialise its gas and generate critical revenues?
The answer could be hydrogen. Rovuma basin gas could continue be landed in Cabo Delgado and used to generate blue hydrogen instead of LNG, with carbon dioxide emissions injected in offshore reservoirs.
For this to happen, Mozambique must create a stable enough investment environment to attract know-how and capital.
Nyusi should already be giving some serious thought to creating enabling policies so his country can be an early mover in the hydrogen game.
(This is an Upstream opinion article.)