Mozambique ‘needs independent producers’ body’ for hydrocarbons sector, says report

The report (56-page / 35.2 MB PDF) said the arrival of the liquefied natural gas (LNG) industry in the country is “of particular note... in the context of some globally-significant offshore gas finds in the north”.

In addition to LNG development, the report said “significant investments” are under way in agribusiness (biofuels production), coal, non-hydrocarbon minerals and fisheries.

The report has recommended that Mozambique’s policymakers establish an “independent producers’ association” for the hydrocarbons sector, which it said could “bring a range of benefits to the government, the private sector and civil society – particularly if this was funded not by the private sector but by a donor”.

“The mandate of the producers’ association should be to lobby the government on issues that could otherwise detract from individual company interests,” the report said. “The government should use the association to ensure that all operators, including contractors, work on a level playing field. Civil society would be able to use such an association as a forum via which to raise their concerns.”

According to the report, the challenges for Mozambique’s government are “interlinked”. The lack of large-scale revenues and the “persistence of a constrained tax base mean that it does not have the funding required to develop the roads, railways and electrification that would hugely benefit internal and external trade, and bring investment into the business sector”.

The report said: “Cognisant of the political sensitivities involved, and working with international donors and investors, Mozambique’s policymakers have to select and undertake a clear and unambiguous set of measures that balance the short-term needs of commercially-competitive industries – which can provide a strong return for the government – with the social needs as well as the constitutional rights and expectations of the country’s citizens.”

However, the report said recent political developments in Mozambique marked “the beginning of an important era”, with the party of government, the Mozambique Liberation Front, “clearly anxious to back the newly-elected head of state, Filipe Nyusi”, which in turn is encouraging increasing commitment from foreign investors.

In terms of the development of the extractive industries, the report said coal will overtake aluminium as Mozambique’s main export in the short term and before LNG production comes on stream.

“Much has been made of the country’s anticipated windfall from LNG, which has been enthusiastically talked up by some foreign investing companies as well as by Mozambican politicians,” the report said.

“When Mozambique’s gas comes online, in 2019 or shortly afterwards, revenues from hydrocarbons have the potential to enable the country to pay its way out of poverty. However, revenue levels and the real horizon for such an outcome are in no small part affected by international commodity prices,” the report said. “Levels of investment and revenues will be constrained while oil prices remain low, but the current window means that Mozambique can buy time and plan for the future.”

The report cited data from Texas-based Anadarko, the operator of offshore Area 1 in Mozambique’s northern Rovuma Basin, which showed that “massive natural gas discoveries have the potential to elevate Mozambique to the world’s third-largest exporter of natural gas.” This is based on the assumption of recoverable reserves of 2.25 trillion cubic metres (Tcm), the report said. “In fact, on the basis of current knowledge, even if Mozambique has 7 Tcm of reserves in total, this may make it the seventh largest in the world in terms of reserves.

Last July, South African petrochemicals group Sasol Limited and its partners, Empresa Nacional de Hidrocarbonetos (ENH, Mozambique’s national oil company) and Italian energy group Eni, announced they were assessing the viability and benefits of a potential large-scale gas-to-liquids plant in Mozambique, which would be based on gas from the Rovuma Basin.

A report published last year by the UK-based Oxford Institute for Energy Studies (62-page / 3.18 MB PDF) said gas finds in the Rovuma Basin “could represent an economic game changer for one of the world’s least developed countries”.

The report said: “Amid such ambitious plans and schedules, 2014-15 will be a crucial decision-making period for developers looking to race ahead of other East African ventures, such as those in Tanzania, if they are to succeed in bringing liquefied natural gas production online by the end of the decade and to finalise long-term contracts with, primarily, Asian buyers before the global price outlook changes.”