Outlook improves for the natural gas industry in Mozambique

5 March 2018

The signing of new contracts for the sale of Mozambican natural gas, namely to China, as well as the government approval of the Area 1 project led by US group Anadarko Petroleum, have improved the outlook for this industry in Mozambique in recent weeks.

The Economist Intelligence Unit (EIU) said in its latest report on the Mozambican economy that “greater confidence” in the country, especially from 2020/22, related to the outlook for natural gas, led to an upward review of forecasts for growth, investment, and exports.

“With the approval by the government [of the Anadarko project] there is a major obstacle to the development of what can be an economically transformative project for Mozambique,” said the EIU.

In the first 25 years of liquefied natural gas (LNG) production, according to IMF calculations, the government is expected to take US$30 billion in revenues from this sector, which will account for around 50% of the country’s GDP if all planned projects go into operation.

The EIU pointed out that these forecasts are subject to significant uncertainty due to the volatility of energy markets and the fact that the details of the project are not known. The EIU also expects that cost recovery guarantees for investors will reduce the tax contribution in the early years of production, regardless of the impact on the economy as a whole.

The Government’s aim for Area 1 gas extraction to begin in 2022-23 is “ambitious” according to the EIU, and is more likely to occur only in 2025, as sale and financing contract is still under negotiation.

“However, an investment of this scale is of great importance to Mozambique’s troubled economy (…) Anadarko’s ongoing commitment to project development is a vote of confidence that will reassure lenders and investors about the country’s prospects in the long run,” it said.

Anadarko’s share is 26.5% in the consortium, which also includes ENH Rovuma Area 1 (15%), Mitsui E&P Mozambique Area1 Ltd. (20%), ONGC Videsh Ltd. (10%), Beas Rovuma Energy Mozambique Limited (10%), BPRL Ventures Mozambique BV (10%), and PTTEP Mozambique Area 1 Limited (8.5%).

The Anadarko group reached an agreement with Electricité de France (EDF) in February to sell 1.2 million tons of LNG per year over a 15-year period.

The Africa Monitor Intelligence newsletter recently wrote, citing sources close to this project, that only 40% of forecast production capacity for the Area 1 block has been sold.

“Given the unlikelihood of signing the final investment decision before the full sale of production is secured, the possibility of Anadarko not confirming its investment before the end of 2018 is bolstered,” Africa Monitor Intelligence reported.

In the last week of February the US group announced that it was negotiating the sale of LNG to a number of Indian companies, including public and independent LNG buyers, such as Petronet LNG, Oil and Natural Gas Corp., Hindustan Petroleum Corp. Ltd, Bharat Petroleum Corp. Ltd, and Gujarat State Petroleum Corp, among others.

“The central and favourable geographic location of Mozambique means that the country is well positioned to respond to the needs of customers in the Asian and Pacific markets, in particular by leveraging the growth in demand for energy in China,” said Anadarko. (macauhub)