Overview

The discovery of large gas reserves in the waters off Mozambique has transformed the country’s economic outlook. Since the end of its civil war in 1992, Mozambique has achieved macroeconomic stability and a high rate of economic growth. The legacy of the war remains, however, with old enemies Renamo and Frelimo – Mozambique’s political parties – at odds. Mozambique also suffers from a chronic lack of infrastructure and one of the world’s smallest economies.

The Mozambican government has responded to the news of gas reserves with level-headed caution, understanding the creation of a gas industry and the revenue derived from it needs to be handled carefully to maximise the benefit to the country. The government has put together a gas ‘roadmap’, which includes a large capital expenditure programme to improve the country’s infrastructure. It also hopes to attract new industries such as fertiliser and chemical production that will make the most of its gas resource. The government is in the process of approving a Gas Master Plan to outline future development of the industry.

One of the potential barriers to the production of gas is the stability of the government and its fiscal regime. The Mozambican government needs to guarantee regulatory certainty for investors and it has been making strong moves to provide this, reviewing the fiscal regime to close loopholes and clamping down on corruption.

The other major concern is a lack of infrastructure, particularly in the north of the country near Palma, where the gas finds were made. Latest reserve estimates suggest there is 80 trillion cubic feet (2.27 trillion cubic metres) in Offshore Area 1, operated by Anadarko Petroleum, and Offshore Area 4, operated by Eni. This could provide the basis for a multi-train LNG plant, but this will have to be built from scratch as there is no existing infrastructure.

Even so, Mozambique has the potential to become a major LNG-exporting nation and is well placed to access to the growing East Asian market. Anadarko is planning a two-train 10 mtpa plant and plans to take FID in 2014. Eni is still considering its options, and is said to be in favour of an FLNG option for the field. Both projects are unlikely to be online before 2018.

The local market will also need significant investment. Mozambique struggles with low electrification rates and an underdeveloped power sector. The size of the investment needed to develop the infrastructure is overwhelming and the government needs to guarantee regulatory certainty for investors. The Mozambican government is in the early stages of a capital expenditure programme to build the infrastructure needed to increase generation capacity and improve urban and rural electricity access.

Page updated: 18/08/2014