The gov­ern­ment be­gan spend­ing be­fore its re­source boom kicked in, but some gas de­vel­op­ments are be­gin­ning to move in a cli­mate of in­creas­ing in­ter­na­tional com­pe­ti­tion

The Africa Report - - CONTENTS -

A re­source revo­lu­tion de­layed

Since 2010, the c ycle of dis­cov­ery and dis­ap­point­ment has been rough on Mozam­bique. The agree­ments and fi­nance needed for the multi­bil­lion-dol­lar gas in­dus­try to take off have been hard to come by. But in June of this year Claudio Descalzi, chief ex­ec­u­tive of the Ital­ian oil and gas multi­na­tion Eni, flew to Ma­puto to launch the con­struc­tion of a float­ing liq­ue­fied nat­u­ral gas plant (FLNG) known as Coral. It is the first project to de­velop Mozam­bique’s gi­gan­tic gas re­serves. The se­cond will be the Mozam­bique LNG Project (see graph on page 88). The Coral re­serves lie in the wa­ters off­shore of Cabo Del­gado Prov­ince, in the north of the coun­try. The de­posits dis­cov­ered so far con­tain an es­ti­mated to­tal of 140trn cu­bic feet of nat­u­ral gas, which makes it the most sig­nif­i­cant dis­cov­ery in the gas sec­tor in the past decade. Ar­eas 1 and 4 of the Rovuma Basin, where the dis­cov­er­ies were made, be­long re­spec­tively to US firm Anadarko a nd Eni. At f ul l pro­duc­tion, Mozam­bique could be­come the world’s third-largest gas pro­ducer, just be­hind Qatar and Aus­tralia. But with the re­cent hey­days of the oil and gas in­dus­try seem­ing a dis­tant mem­ory, Mozam­bique’s road to be­come a ma­jor gas player has been bumpy. With the gas price now 40% lower than it was a few years ago, and an in­crease in gas pro­duc­tion world­wide, a re­cal­i­bra­tion of ex­pec­ta­tions for all stake­hold­ers is un­der way. Cer­tainly, oil com­pa­nies are bet­ting on the growth of the LNG mar­ket and are boost­ing in­vest­ments and pro­duc­tion across the world. Gas has lower car­bon emis­sions than coal and oil, and it serves as a bridg­ing re­source in the tran­si­tion be­tween fos­sil fu­els and the age of re­new­able and cleaner en­ergy. How­ever, there is con­cern that this op­ti­mism may drive a glut in the mar­ket. Some in­dus­try sources es­ti­mate that LNG sup­ply will rise by more than 50% over the next five years. Eni is in­vest­ing bil­lions of dol­lars to bring the huge Zohr field in Egypt into pro­duc­tion by the end of this year. That is another rea­son for Mozam­bique to speed up de­vel­op­ing its re­sources. The coun­try is still weath­er­ing a debt cri­sis that added pres­sure to an econ­omy al­ready un­der strain from the crash of com­mod­ity prices. It badly needs for­eign in­vest­ments in hard cur­rency, like those that would be in­volved in the devel­op­ment of the LNG fa­cil­i­ties. The main na­tional devel­op­ment plan calls for the con­struc­tion of an on­shore LNG fa­cil­ity, shared by Area 1 and Area 4 op­er­a­tors, that will liq­uefy the gas for ex­port. The cost of the first phase of the on­shore LNG project is es­ti­mated to be $12bn-$15bn – fig­ures that are big­ger than the coun­try’s gross do­mes­tic prod­uct in 2016. And with weak do­mes­tic in­dus­trial and oil ser­vices ca­pac­ity, much of the money is likely to be spent on ma­jor in­ter­na­tional firms like US com­pany Baker Hughes, which has been con­tracted for work on the LNG and FLNG plants.


With de­lays on the main on­shore plant, Eni has pri­ori­tised the devel­op­ment of its nearby Coral field, which is thought to hold re­serves of 16trn cu­bic feet. Eni signed an agree­ment with BP to make it the sole LNG

buyer last year, re­port­edly set­tling on a lower price to bring home the deal. Eni was then able to ar­range the fi­nanc­ing for the new FLNG fa­cil­ity, which is due to start pro­duc­tion in 2022. The grand style of the in­au­gu­ra­tion and press con­fer­ence on 1 June ex­pressed more a call for con­fi­dence than joy at fresh cash ar­riv­ing. Mozam­bique’s Pres­i­dent Filipe Nyusi ad­mit­ted that, to re­alise the project, the coun­try had had to sac­ri­fice fu­ture rev­enue and do­mes­tic gas devel­op­ment, as the Coral FLNG project does not have any pro­vi­sions to boost do­mes­tic gas sup­plies. But Nyusi said he hopes the green light for the FLNG fa­cil­ity will be per­ceived as a vote of con­fi­dence for the coun­try. Given the huge cor­rup­tion is­sues sur­round­ing the 2013 Ema­tum tuna bond – a case where the gov­ern­ment bor­rowed money that it is strug­gling to pay back and part of which has been mis­ap­pro­pri­ated – it is per­haps un­der­stand­able that the Coral project is be­ing feted.


Claudio James, di­rec­tor gen­eral of Pet­ro­gas, a sub­sidiar y of Mozam­bi­can fuel com­pany Petro­moc, says: “The fi­nal in­vest­ment de­ci­sion (FID) for the Coral FLNG project has changed the whole trust and be­lief about mak­ing such projects in Mozam­bique, es­pe­cially be­cause of the fi­nan­cial mar­ket sit­u­a­tion. This is the first FLNG project that has gone through project fi­nance.” He adds: “And the in­volve­ment of an off-taker such as BP, 13 com­mer­cial banks and three con­ces­sional banks shows that Mozam­bique has the trust of both the fi­nan­cial and oil and gas in­dus­tries.” The Coral devel­op­ment will not have a ma­jor im­pact on the lo­cal econ­omy, how­ever. Tavares Mart­inho, the ex­ec­u­tive vi­cepres­i­dent ex­plo­ration and pro­duc­tion at ENH – the Mozam­bi­can na­tional oil com­pany and a part­ner in the gas projects, points out: “The devel­op­ment of the sec­tor does not de­pend on the FID made for FLNG in Area 4. The most im­por­tant ac­tiv­i­ties will ap­pear as FID for the on­shore LNG [is] made. Most of the work for the FLNG will be done out­side of Mozam­bique.” The gov­ern­ment will earn sub­stan­tial rev­enue from the Coral project even­tu­ally, but only af­ter the oil com­pa­nies have re­cov­ered their costs. This means the hope for the coun­try to see ma­jor ben­e­fits from its gas lies with the on­shore LNG plant that will make the bulk of Mozam­bi­can ex­port ca­pac­ity. In March, Eni s ol d a 2 5 % stake of Area 4 to US su­per­ma­jor Exxonmo­bil. The stake makes Exxon the op­er­a­tor of the Mamba field, which shares its gas reser­voir with Anadarko’s Golfinho field in Area 1. The gas will be pro­cessed in the planned on­shore LNG fa­cil­ity us­ing in­fras­truc­ture that Eni/ Exxon will own in part­ner­ship with Anadarko. Once it set­tles in, Exxon could bring new mo­men­tum to a project that has been los­ing steam and has been plagued by de­lays. Fi­nanc­ing the LNG fa­cil­ity is prov­ing chal­leng­ing be­cause of the low cur­rent price of gas. The project faces com­pe­ti­tion from sev­eral other new de­vel­op­ments in other coun­tries. Th­ese are closer to com­ing on­line and, like Mozam­bique’s, are aimed at mar­kets in Asia.


At the mo­ment, Anadarko only has an in­for­mal agree­ment for its Rovuma gas, and bind­ing sales con­tracts seem far away. With­out guar­an­teed rev­enue and hard num­bers to present to the lenders, there is not a solid base for fi­nanc­ing. ENH’S Mart­inho points out that, de­spite progress made in agree­ments be­tween the Mozam­bi­can gov­ern­ment and the oil com­pa­nies, there is “not much we can see in the com­ing months on the on­shore LNG”. Nev­er­the­less, the gov­ern­ment is try­ing to put in place plans to ben­e­fit do­mes­ti­cally from the gas. “The lo­cal in­dus­try is not well pre­pared, but there are a cou­ple of ini­tia­tives that are tak­ing place to guar­an­tee their in­volve­ment, like a new na­tional con­tent law, for ex­am­ple” says Pet­ro­gas’s James. The Ma­puto gov­ern­ment has been work­ing on the draft na­tional con­tent law, which will set out pro­vi­sions for the em­ploy­ment of lo­cals in ma­jor projects and for the use of lo­cal com­pa­nies as sub­con­trac­tors. Years ago, donor gov­ern­ments warned that the gov­ern­ment needs to speed up the for­mu­la­tion of its na­tional con­tent pol­icy or risk miss­ing an op­por­tu­nity to pre­pare the ground be­fore the oil com­pa­nies get started. The gov­ern­ment is also award­ing ten­ders to in­ter­na­tional play­ers to help kick-start a lo­cal gas in­dus­try so that Mozam­bique can ben­e­fit from do­mes­tic gas with­out be­ing solely reliant on LNG ex­port. “Cur­rently the gov­ern­ment has ad­ju­di­cated two projects [urea for Yara and gas-to-liq­uids for Shell], the gas master plan has some guide­lines for do­mes­tic gas and the gov­ern­ment is cur­rently ne­go­ti­at­ing ac­cess to more do­mes­tic gas from Mamba and fi­nal­is­ing the num­bers for the Golfinho field,” says Pet­ro­gas’s James. Honoré Banda

Mozam­bique is hav­ing to re­cal­i­brate its ex­pec­ta­tions for a gas-fu­elled boom

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