Monday, April 15, 2024

Mozambique, future global energy hub?

The enduring crisis in Russia-Europe relations opens new prospects for countries with large reserves of yet idle energy deposits. One of them is Mozambique, which in late 2022 sent the first shipment of gas to Europe from an offshore LNG platform. The batch is a definite harbinger of nascent trade, but full fruition is yet to come: hidden treasures of onshore deposits may turn the country into a new rich and become a takeoff ground for the nation.

“Mozambique enters the annals of world history as one of the exporting countries of LNG,” stated Mozambican President Filipe Nyusi when the first liquefied natural gas tanker left Mozambique for Europe in November 2022. “Mozambique is joining the ranks of global LNG producers and contributing to global LNG supplies at a time when the world needs it most,” added Claudio Descalzi, CEO of the platform’s operator Eni.

These cheerful statements reveal the hopes of both parties. Europe is hungry for energy: Germany alone used 100 billion cu. m. of gas in 2021, and the notorious Russian Nord Stream 1 used to deliver 170m cu. m. a day before the war started, nearly a year and a half ago. Now that the flow of gas is growing thinner, the region is experiencing recession and retracing its steps to coal, doing so with great reluctance and high hopes to find new reliable energy suppliers. Mozambique is eager to meet this demand, the more so the country has every opportunity to do it.

“Mozambique is a very large find; has low CO2 gas; is an ideal geography for Southeast Asia but can also service Europe and East Asia,said Paul Eardley-Taylor, director of Oil & Gas, Southern Africa at Standard Bank. It’s not about over 28 billion cu. m. of proven offshore natural gas reserves and an advantageous geographical position only, but about the prosperity of the African state as well. Right now, Mozambique, one of the poorest countries in the world, is seeking new sources of revenue to get off the ground.

The get the intention going, the country invited foreign investors and energy giants and used their support to start developing the deposits. At the moment the main production activity is taking place offshore, at the Coral Sul floating platform built in South Korea and operated by Italian Eni – which is where the first tanker departed from. The site’s operating capacity is expected to reach 3.4 million metric tonnes of LNG a year, delivered via six subsea gas-producing wells, with 100% of the fuel contracted for long-term purchases by British BP.

Eni’s site is just one of three major gas projects in the country. Two of its continental counterparts – Rovuma by American ExxonMobil and Afungi led by the Mozambique LNG consortium – are now officially on hold due to regional instability.

30 million metric tonnes of LNG per year – this is the expected capacity once the two onshore projects are launched. This figure will enable Mozambique to cover nearly 50% of demand for the chilled fuel expected in Europe by 2025. One of them, the Rovuma LNG Project, belongs to the Area 4 block of the Rovuma basin. Eni and Exxon, in charge of the project, plan to produce 15.2 million mt/year using two liquefaction trains, onshore and marine facilities, and other infrastructure covering approximately 7,000ha of land. Some construction works were initiated but put on hold later due to Islamist insurgencies. As of now, Exxon’s final investment decision on the project hasn’t been pronounced yet as the company is waiting for a cue from Mozambique LNG, its neighbor in the Rovuma basin.

In turn, Mozambique LNG is perhaps one of the most awaited now. The project has been suspended for more than two years for the same reason of civil unrest in the country, but  its stakeholders have repeatedly made it clear that this would only be temporary.

Back in the day, the enterprise has become nearly a sensation for the country and its population: when the consortium’s leader, Totalenergies, acquired the operator stake from Anadarko Petroleum Corp. Three years ago, the amount of gathered investment hit 14.9 B$. The figure was the biggest ever in Africa, and the most surprising was the fact that Total fetched the funds in less than a year after taking the project aboard and on the background of the general slump in energy investments. “The signing of this large-scale project financing… demonstrates the confidence placed by the financial institutions in the long-term future of LNG in Mozambique,” declared Jean-Pierre Sbraire, Chief Financial Officer of Total, then.

After the final contracts were signed, Mozambique LNG started onsite activities. Similarly to Exxon, the consortium intends to build two liquefaction trains, gas pre-treatment facilities, and full-containment LNG storage tanks. Had assembly work been carried out according to the original schedule, initial production would have reached 1288 per year, starting in 2024, with over 90% of the chilled fuel already backed by long-term contracts with European and Asian clients. Unfortunately, Total’s entry coincided with the start of an uprising in Cabo Delgado province, which destroyed some infrastructure and affected many locals. Security in the region now remains a key factor in the company’s comeback, but analysts believe this setback is temporary.

Just 1% GDP growth was projected for Mozambique back in 2019, so it is not surprising that the government welcomed the energy giants with open arms. With the arrival of foreign investors, analysts expected the figure to skyrocket to 9% by 2024 through profits from fuel sales and the inflow of foreign investment: “The multinational companies, wherever possible, are expected to hire local companies as suppliers of goods and services, such as financial and legal and civil construction,” said local analytics. However, once the unrest started, the projects were frozen. The eagerly awaited jobs and benefits were delayed, which brought in a flurry of criticism and discontent.

Having recovered from the shock, the government, together with some investors, began to make efforts to remedy the situation. Mozambique opened the door for foreign armed support to keep the insurgents down, and initiated government reshuffles and a sovereign fund to manage LNG profits. In order to help the community, President Nyusi has pledged to invest in agriculture, support small and medium-sized businesses, create a housing construction fund, and return 10% of natural resource revenue to the regions where the exploitation takes place.

Mozambique LNG members are still waiting but show more activity onshore by continuing some of the previously launched projects. At the moment, they mainly concern social initiatives, most of which were planned at the very beginning of the company’s operations in the country. After the introduction of foreign military forces, the situation is gradually taking a turn for the better. Consequently, the consortium is cautiously yet successfully continuing education programs for local people, including for those displaced due to the conflict, setting the scene for a smooth technical relaunch by eyeing future tenders and subcontractors. Meanwhile, Mozambique is seeking deeper support to accelerate the multinational endeavour to stabilise the Cabo Delgado province.

Will Mozambique become a future global energy hub? The success of the Coral Sul FLNG platform is an important, but far from the decisive, component of an answer to this question. The country needs to develop all resources, as stated by Guido Brusco, Eni’s chief operating officer of natural resources: “I believe that to fully develop Mozambique’s considerable gas resources, the right decision is to move toward both an onshore concept and an offshore concept.” This is also clearly the view of Mozambican stakeholders. During a recent visit to Pemba, Inocencia Maculuve, a senior official of the INP (National Petroleum Institute), the national regulatory authority, emphasised the vital importance of the projects for the country and the key role of international energy companies in this regard.

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