Mozambique makes its picks in gas tender

Mozambique’s selection of Shell and fertiliser giant Yara as the main winners in its domestic gas tender is good news for investors as it shows the professionalism of the country’s new energy minister and the government’s commitment to gas industrialisation, sources told Interfax Natural Gas Daily this week.

There had been fears the competition would favour local companies with limited experience in developing energy projects but good connections to leaders within Mozambique’s ruling party, Frelimo.

However, Mozambique’s Ministry of Mineral Resources and Energy (MIREME) announced on Monday that the domestic market obligation gas from Offshore Area 1 and Offshore Area 4 in the Rovuma Basin would be allocated to three international companies, with London-based GL Africa Energy taking the third slot.

Shell has been allocated 8.8-9.3 million cubic metres per day (MMcm/d) of gas to fuel a proposed 38,000 barrel per day GTL plant. The facility would produce synthetic diesel, naphtha and kerosene, as well as 50-80 MW of power. Yara International has been allocated 2.2-2.5 MMcm/d of gas for a 1.2-1.3 mtpa fertiliser plant that will also generate 30-50 MW of power.

"I think the National Petroleum Institute [INP] has made good choices with Shell and Yara, which are both reputable companies with the right technology and track record," said Anthony Williams, managing director of Citius Energy, which is involved in the development of energy projects in Mozambique.

Several other industry sources agreed. "We were all a bit worried, given the delay in making the announcement – but this is a positive sign," said a Maputo industry source involved in the development of the Rovuma Basin gas fields.

GL Africa Energy, however, is relatively unknown. The company, which will be allocated 1.2 MMcm/d of gas to build a 250 MW power plant, operates a 50 MW heavy fuel oil-fired plant in Ndola in Zambia, which it is in the process of expanding by 55 MW. However it appears to have no prior experience developing gas projects.

Although these three bids have been prioritised by the government as domestic gas projects, this is no guarantee that any of them will reach FID.

"It is still very early days in evaluating a possible project of building a fertiliser plant in Mozambique," a spokesperson for Yara told Interfax Natural Gas Daily. However, the provisional allocation of gas "is a necessary step to proceed with future negotiations about all other conditions for building and running a world-scale fertiliser plant", she added.

It is possible local partners could be added to the consortiums during these early discussions.

"It will be interesting to see who the local partners will be, if any, given the suggestion in the INP’s terms of reference that respondents include state participation and shareholding of national citizens and enterprises in the structuring of the project companies," said Williams. "If these inclusions have not already been made, it will no doubt be brought up in the negotiation phase."

A total of 14 bids were submitted under the tender, including seven from local companies or consortiums: state electricity company EDM; Maputo-based private equity investor Epsilon Investimentos; Gasnosu, a company planning to pipe gas from the Rovuma Basin to South Africa; and Autogás, a Mozambican company that supplies gas to fuel vehicles, including some of Maputo’s public buses. There were also bids from three previously unknown Mozambican companies – the UNION-JNC-JSPDI-VBC-SAL Consortium, Muinvest and MOTSE.

Gas on offer

The domestic gas tender, launched on 26 August, offered bidders up to 2.8 MMcm/d of gas at $2.5/GJ ($2.6/MMBtu) from the Rovuma Basin, which will be available when Anadarko’s 12 mtpa LNG project comes online around 2022. Bidders can negotiate up to an additional 8.5 MMcm/d directly with the Area 1 and Area 4 consortiums, putting a total of 11.3 MMcm/d on offer. However, the allocations announced by MIREME on Monday amount to 12.2-13.1 MMcm/d.

More domestic gas from the Rovuma Basin should become available if Anadarko, operator of Area 1, or Eni, operator of Area 4, decide to bring additional trains online.

Fresh exploration should also start offshore Mozambique later this year or in early 2017. The INP has said it expects to sign contracts with the winners of the fifth licensing round, which closed in October 2015, by June of this year. Should drilling by ExxonMobil, Sasol, Eni and Delonex yield new finds, 25% of this gas will need to be earmarked for the domestic market under Mozambique’s petroleum law.

"The gas available now is only a small quantity compared to what it could be," Marco Morgado, managing director of pipeline operator Matola Gas Co., said on the sidelines of the African Influence Infra-Gas Projects Mozambique 2017 conference in Maputo on Tuesday.

"A north-south pipeline is key for Mozambique’s development," he told delegates. Gasnosu will be ready to compete in subsequent domestic gas tenders – or it could also look to negotiate directly with the Area 1 and Area 4 shareholders for supplies, Morgado later told Interfax Natural Gas Daily.