Natural Gas : Mozambique’s hope

7 Min Read

The discovery of rich natural gas fields has already begun to change the face of one of the poorest countries in the world. An opportunity Mozambique cannot lose.

Mozambique is one of the poorest nations in the world. It is 185th out of 189 countries in terms of gross domestic product (GDP) per capita, according to International Monetary Fund data (IMF – World economic outlook of April 2017). However, the country has an ace in the sleeve that could allow it to rise and go against the current – natural gas, a resource that is still largely unexploited. So far, the only company actively producing this is South Africa’s Sasol, with operations in the province of Inhambane, which, according to estimates, has reserves amounting to 730 billion cubic meters of gas. This figure represents only a small part of Mozambique’s overall potential as it is estimated that one of the reserves has more than 5,000 billion cubic meters of natural gas, placing the country among the top ten in the world with the largest reserves.

It is estimated that by 2023, Mozambique could be one of the world’s largest natural gas exporters. Currently, the project called Coral South liquefied natural gas has taken the lead after signing of a $ 7 billion investment contract to export oil from Mozambique. On the day of signing the Coral South project development agreement in Maputo, Mozambique President Filipe Nyusi expressed his enthusiasm saying, “We are finally transforming this resource into money. We hope it will help us bring the economy back to the performance of the last decade. ”

The country is in fact coming out of 2016 having performed very poorly , with GDP barely rising by 3.4%, marking the worst performance since 2000. The year was characterised with a sharp decline in direct foreign investments, drought (agriculture accounts for a quarter of GDP), the fall in commodity prices (particularly aluminium and coal) and control of public spending to contain the public debt which according to the latest IMF survey is currently standing at 106.9% of GDP.

Despite all this, international investors have not lost confidence in the future of the country. They are optimistic about the possibilities of developing what has now become the country’s main asset, natural gas. According to IMF’s projection, the  economy will grow by 4.5% this year, a figure that is still below the average 7.3 percent seen in the years 2006 to 2015.

A river of money

While waiting for natural gas to be exported from Mozambique, companies that have discovered the deposits are engaging in the industrial development projects. In addition to the Coral South project, South African Sasol will invest $ 1.4 billion in the development of thirteen wells and a natural gas liquefaction plant, while Anadarko and Eni have entrusted a consortium of companies with the development of the Afungi Lng Park complex, ranging between $ 25 and $ 30 million worth of investment.

Along with investment in the development of production facilities,  which  in most cases are entrusted to western companies with the relevant technologies, also come resources for the infrastructure and development a country that is quickly changing face.

The default in debt repayment is likely to slow down development plans and funding that in the past years, have been coming mainly from major international institutions in very large amounts. However, it will not stop them altogether as the next decade will require $ 40 billion in investment, just for the modernization of ports, airports and roads alone.

The change in progress

Mozambique’s change process has already begun and is seen above all in major cities, particularly in the Maputo capital. In ten years a panorama of disastrous roads, dilapidated buildings and closed shops has changed. Five-star hotels and corporate venues, restaurants and fashion designers now dot Maputo’s upmarket streets.

However, 70% of the population still lives in rural areas and does not benefit from money entering the country. Infact Mozambique remains one of the least developed countries according to the latest Human Development Report released by the United Nations Development Program (Undp).

For this reason, with the help of companies engaged in the industrialization of energy reserves in the country, the government is developing programs to improve the educational system, with the aim of offering citizens the necessary preparation to enter the virtuous circle triggered by natural resources.

To this end, the truce between the two main parties of the country, the Flemish Liberation Front of Mozambique (Frelimo) of the acting President Filipe Nyusi and the Mozambican National Resistance (Renamo) lead by Alfonso Dhlakama of the opposition is of importance. After the civil war between these two factions between 1977 and 1992, a peace agreement has been in place since 1994. Other than economic slowdown, political instability represents a fundamental card that can be a source of discougarement for  companies that are willing to invest in the country.

BOX: Maputo’s capital of gas from 18 to 20 October

Mozambique is keen to become one of the world’s natural gas hubs and is committed to starting a multitude of initiatives. One of these is the Mozambique gas summit, which is in its fourth edition. The summit will be held in Maputo capital from 18 to 20 October 2017 and will be attended by leading government representatives, country agencies and over 500 managers of companies engaged in or interested in the development of natural gas resources, including ExxonMobil, Anadarko, British Petroleum, TechnipFmc, Sasol, Siemens Power & Gas, Société Générale. During the three days of round tables and conferences, the state of the oil & gas sector in the country will be discussed with  the main focus being on the policies to be implemented for its development and the effects and benefits for the country.