Mozambican coal, LNG or titanium are for the long term only

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Today, Italian energy company Eni will complete its long-awaited final investment decision on a large liquefied natural gas (LNG) project offshore Mozambique, a spokeswoman said on Tuesday, Reuters Africa reported. The Coral South project will require the construction of six subsea wells connected to a floating production facility capable of producing more than 3.3 million tonnes of LNG per year.

A ceremony will take place today, with Mozambique’s president Filipe Nyusi and Eni’s CEO Claudio Desclazi attending the event. A consortium led by Eni, including the integrated Portugal-based energy group Galp, Korea Gas as well as the Mozambican state company Empresa Nacional de Hidrocarbonetos (ENH), who own each 10%, will invest up to USD8 billion for the exploitation of six gas wells that will be linked to a platform which will transform the raw commodity into LNG destined to be exported, mainly to Asian markets.

In October last year, British Petroleum (BP) had agreed to buy all LNG production from the Coral South Floating LNG plant. In the meantime, US-based oil and gas firm Anadarko is exploring the offshore deepwater Rovuma Basin, where about 75 trillion cubic feet of natural gas has been discovered.

“Mozambique will be a great source for LNG for the next 20 years,” Anadarko’s CEO Al Walker said two weeks ago during the International Petroleum Summit, in Houston, held by the Association of International Petroleum Negotiators. Anadarko Petroleum should make a final investment decision this year or in 2018 about a natural gas exploration project in Mozambique.

Such investments are badly needed for the Mozambican economy, which is trying to emerge from a deep and severe financial crisis triggered by the disclosure of a hidden debt (USD1.4 billion) by the Government. Mozambique has now become Africa’s most indebted country, whose sovereign credit rating has fallen to the lowest degree possible.

Yesterday in Maputo, Banco de Moçambique’s administrator, Waldemar de Sousa, described as “frightening” the level of Mozambique’s rising debt, putting an extreme stress on the banking sector and sending interest rates to a stratospheric level of 20-28% (1-year maturity!).

If growth is expected to pick up in 2017 and 2018 (to 5.5% and 6.8%, respectively) thanks to the extract sector, the recovery nevertheless depends on its external partners, both private and institutional, for investment and financing of its current account and fiscal deficits.

“Nonetheless large fiscal revenues from LNG megaprojects are still in the future”, warns economists from the African Development Bank in a joint report with UNDP and the OECD published last week. “Until then, the government needs to strengthen its public financial management framework for efficient use of its limited resources to transform the country’s economic development model.”

While representing only 4% of GDP, the extract sector expanded by 11% in 2016 and is expected to become the main growth driver in Mozambique in the long term, given that the Government and the State put in place the proper macroeconomic framework. Gas is not the only source of revenue, infrastructure, titanium and coal also expected to generate a substantial share of revenues for the country.

Coal production in the Moatize Basin expanded in 2016, also benefiting from the conclusion in March 2016 of the Tete-Nacala rail link. With its rail-seaport coal terminal infrastructure now capable of handling 22 million tonnes per year, production and exports are set to reach new records in 2017, according to the African Development Bank.

The African institution also underlines Sasol, from South Africa, which will conclude a USD 1.4 billion expansion program me of the Temane and Pande onshore gas fields, including extension of the pipeline to the south of Mozambique, which will fuel a new 400-Megawatt gas-fired power plant in Maputo, and the remaining gas will be exported to South Africa, boosting exports and fiscal revenues.

By: Levy Sergio Mutemba

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