Making the finding of Liquid Natural Gas a blessing

Gas&Oil

MOZAMBIQUE celebrates 40 years of independence from Portugal this month. The country has become well regarded for its robust economic growth, which is expected to rise by an average of 8% between 2016 and 2019.

Most exciting is the development of a massive natural gas processing industry in the north. The first gas won’t be produced from the Rovuma Basin until at least 2019, but the International Monetary Fund says up to $100bn will be spent on its development, which “could transform the country into the third-largest liquefied natural gas (LNG) exporter in the world”.

To get there, Mozambican authorities will have to address unanswered questions.

The two companies in the Rovuma Basin — Anadarko and ENI — have not yet taken final decisions on the best way to exploit the estimated 200trillion cubic feet of gas.

Anadarko appears to have problems with the title deed granted for the construction of a LNG factory on the Afungi Peninsula, in the northern province of Cabo Delgado.

According to an independent judicial assessment, quoted by the recently established Civil Society Platform on Natural Resources and the Extractive Industry, the title deed is illegal.

An opinion has also recently emerged that under Mozambique’s commercial code, it is not legitimate to set up a company merely to acquire land rights. In 2012, Anadarko Mocambique and the publicly owned National Hydrocarbon Company created Rovuma Basin LNG Land, which was later awarded a title deed.

Anadarko’s local arm would not use the land itself, but would sign contracts with other companies to use the title deed. This, the independent judicial assessment argues, violates the constitution and the land law and can be challenged in court.

Further difficulties would be a seriously setback for the Anadarko consortium, and might delay the construction of the LNG factory. If Anadarko is unable to find a speedy resolution, the major beneficiary is expected to its competitor, Italian energy company ENI, which operates Rovuma Basin Area 4, where even larger amounts of natural gas have been discovered. ENI does not need a title deed, since it abandoned the idea of building a plant on the Afungi Peninsula.

ENI may be first to ship its LNG to markets in the Far East, because of its plans to build a floating LNG factory anchored off the Cabo Delgado coast. That facility would be much closer to the gas deposits than any land-based facility.

With this in mind, Anadarko’s vice-president for operations, Don MacLiver, flew to Maputo to talk directly to Mozambique’s prime minister, Agostinho do Rosario, last month. Following those discussions, MacLiver said talks with the government sought to guarantee the effective development of the project.

“There are agreements we have to conclude to ensure that we can operate and exploit the gas,” he told reporters, adding that “we want a guarantee that we can implement a project of this magnitude in an efficient and effective manner”.

A week ago Anadarko announced it had selected a consortium of companies who would construct the LNG facility, called CCS JV.

The facility will begin with the developments of two LNG trains, each with a capacity to move 6Mt of LNG per year. The joint venture will also build two storage tanks, each with a capacity of 180,000m³.

But ENI is not free from scrutiny either.

Sources within the Mozambique Revenue Authority told IM that they are eyeing news reports that ENI has plans to sell down its 50% stake in Area 4. The basin could contain up to 85trillion cubic feet of gas — making it one of the richest discoveries in recent times.

ENI is rumoured to want to sell 15% of its stake.

If the sale materialises, revenue authorities will collect a substantial amount of tax.

Plunging gas prices have spooked investors. Demand for LNG will increase, but its medium-term future is riddled with uncertainty.

Recent reports that Anadarko was also planning to sell its stake in the Rovuma Basin has surfaced. But MacLiver categorically denied them last month. “These are nothing but rumours,” he said, adding that Anadarko’s appointment of a consortium to build the LNG factory indicated its intention to advance with the project.

Mozambique’s foreign affairs minister, Oldemiro Baloi, told IM that Mozambique wanted to avoid the “resource curse” — the paradoxical phenomenon where countries with an abundance of non-renewable resources tend to have lower development outcomes than countries without them. Baloi says Mozambique is trying to learn from the good and bad experiences of other hydrocarbon producers, so that these resources become a blessing and not a curse.

An IMF source in Maputo said risks, characterised by the slowdown in global economic activity and persistent falls in the prices of the commodities, must be considered when analysing the country’s economic trends.

A new government has been in place since January, and given its macro-economic goals for this year and the projections for inflation in the short and medium term, the IMF “thinks it appropriate to continue a prudent monetary policy”.

But other constraints are linked to the country’s resources. A source close to the Brazilian mining company Vale, which is investing in coal mining infrastructure in the Tete province, told IM that concerns about coal are linked to commodity prices. The absence of reliable infrastructure — including export infrastructure — is another stumbling block.

The Nacala harbour, in the northern province of Nampula, will be operational only during the first quarter of next year. Vale wants to produce about 11Mt of coal in 2016, up from 7m produced now. It’s still unclear whether the infrastructure can support these volumes.

The floods in northern Mozambique earlier this year has negatively affected Vale’s intention to export coal through Nacala using a 900km rail line from the producing fields in Tete province. Once the line is operational, Vale hopes to use it to move 18Mt/year.

To maximise the benefits of the new resource boom, Mozambique will also have to resolve its political instability.

In late April, its Frelimo-led parliament voted against a new bill proposed by the former rebel movement Renamo on provincial autonomy. Its objection was that the bill was unconstitutional.

The purpose of this bill was to put the control of these provinces into the hands of Renamo. The provinces under dispute are believed to be those with large gas and coal deposits.

The political uncertainty stems from disputed results in the October 2014 elections. The outcome was rejected by Renamo and the third-largest political party, the Democratic Movement of Mozambique.

Speaking at a recent meeting in Nampula, Renamo leader Afonso Dhlakama said he would meet with President Jacinto Nyusi to put an end to what he called “the post-election crisis”.

Nyusi responded by welcoming the overtures of peace, but said he would not hijack the authority of institutions such as Mozambique’s parliament.

“I have always said that I am more than willing to do what has to be done so that the country remains at peace,” he declared. “But I want to make it clear that I shall continue to defend the separation of the three powers.”

The face-off between the parties has not had a direct impact on Mozambique’s economy or on foreign investment in the hydrocarbons sector. Investors, however, will watch developments carefully.

source: Alfredo Libombo

Gal Despachos Aduaneiros en Maputo | Clearing Agent in Mozambique | Top Website | http://www.galclearing.com
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