Last week I attended an oil and gas brief by Standard Bank (Stanbic) on business opportunities available in the fast evolving natural gas developments in offshore Mozambique, an area that has been acknowledged as a top future global exporter of Liquefied Natural Gas (LNG).
With total natural gas reserves of 150-200 tcf (trillion cubic feet), Mozambique is now one of the major natural gas basins in the world. As much as $128 billion capital expenditure will be spent in Mozambique by major oil companies over the next five years.
LNG is natural gas (methane) chilled into liquid at very low temperatures for ease of storage and marine transportation. Natural gas is also transported in pipelines at ambient temperatures. LNG is different from Liquefied Petroleum Gas (LPG) which is a heavier gas (butane) liquefied under pressure, and which is usually sourced from crude oil refining.
Unlike in Tanzania, Uganda and Kenya where timelines for oil and gas final investment decisions (FID) are still uncertain, Mozambique is way ahead with FIDs. One investor consortium led by Total committed FID last year, with a major financial closure already done targeting first LPG export shipment by 2022. The other investor consortium led by ExxonMobil is nearing its FID with first LNG exports planned for 2024.
Unlike with crude oil, by the time FIDs for LNG projects are finalised, long term export/sale agreements have already been signed with major consumers across the world which limits investment exposure by pre-committing sales volumes and pricing structure. In the case of Mozambique, LNG exports are destined to India, China and other Far East destinations. Relatively short distances to Asia favour Mozambique LNG.
Interestingly, the ongoing LNG developments are in the same Rovuma Basin immediately across the border with Tanzania, where similar offshore LNG projects are yet to be committed, with the Tanzania government yet to finalise investment frameworks with the investors.
However, it is important to mention that Tanzania has already commercialised its onshore natural gas production into 600MW of power generation, while fuelling a number of key industries with piped natural gas. This has permitted Tanzania to back out use of high carbon imported fuel oil. Similarly, Mozambique has been exporting natural gas by pipeline from its onshore production to South Africa since 2004.
Mozambique oil and gas has succeeded where its regional neighbours have failed for a number of strong reasons. Its natural gas resources are quite significant and can be scaled up over time making it attractive for large global investors who are sufficiently capitalised, with advanced technologies, and ready access to global markets. From climate change point of view natural gas energy is in high demand.
Being lower in carbon content, natural gas is the transitional fossil energy of choice from coal (and fuel oil) to renewable energy especially for power generation and industries...
Further, being mostly offshore resource, Mozambican natural gas attracts less local politics and conflicts as happens in onshore oil and gas resources where resettlement and land compensation cause undue delays and higher project costs. Mozambique also appears to have in place the right oil and gas legal and regulatory framework and commercial agreements that appear to attract international investments.
Of course Mozambique is prone to the routine problems that bewitch Africa. Severe climatic adversities (floods), serious foreign debt problems, and periodic electoral conflicts are acknowledged problems.
However, it looks like the government of Mozambique is fully focused on oil and gas sector and is determined to insulate the sector from all manner of local challenges.
In respect of potential opportunities in Mozambique for Kenyans, we have companies and experts who have acquired direct and indirect oil and gas expertise and capacity in the support of upstream resource development. These can partner with Mozambican companies to participate in the oil and gas sector as per Mozambique ‘local content” regulations. With an apparent slowing down of upstream investments and activities in Kenya, these are opportunities which Kenyans cannot ignore.
The take away message from the Stanbic brief was that their Mozambique affiliate is ready to walk with Kenyan businesses to explore oil and gas opportunities in Mozambique.