Mozambique: resource curse or opportunity?

July 21, 2014

IHS' Chief Upstream Strategist Bob Fryklund addresses 2014 Offshore Technology Conference. Photo: Audrey Leon/OE. 

Mozambuque is thought to be the jewel in East Africa's crown, but will its abundant gas resources pay off for the country? Audrey Leon reports. 

Mozambique, with all its natural beauty and massive resources, has been a hot topic in the industry for some time. While the country is recognized for being one of the fastest-growing economies, with 7.6% growth in GDP in 2013, it still has plenty of challenges.

Ana Maria Raquel Alberto, commercial counselor for the Embassy of Mozambique, told attendees at this year’s Offshore Technology Conference (OTC) in Houston, that despite challenges that include poverty, qualified workers, training, and infrastructure, the country desires to be an attractive partner with industry. “We want Mozambicans to be employed by your companies,” she says.

While Mozambique is energy resource rich, only 12% of Mozambique’s population has access to electricity, according to World Bank data. Power transmission and remoteness are two key challenges that Mozambique needs to address, according to IHS’ Chief Upstream Strategist Bob Fryklund, who also spoke at OTC. “Mozambique has a way to go; that’s why we see FLNG as a production option. The remoteness is a challenge.”

Resource curse

In his presentation, Fryklund discussed the possibility of Mozambique falling victim to the resource curse. “Mozambique is in a race to figure out what to do with its resources, asking should it be available for domestic use or export,” he says.

Fryklund estimated that Mozambique contains oil resources of 2.5MMbbl, and natural gas resources of 200Tcf and growing, calling the country’s resources a “world-class amount of gas.” However, Fryklund feels it is a race to monetize those rich resources. “That’s where the curse comes in,” he said. “People are try- ing to get in there first.”

Fryklund continued, telling the OTC audience that with 30 million tons of LNG at stake, East African LNG needs to be priced competitively. When compared to Qatar, the Middle Eastern country’s gas is still the cheapest.

“You have the US, Canada, West Africa all coming up. There’s such a thing as ‘mega-project disease,’ Fryklund says. “We’re competing against ourselves. We’re trying to do so much at the same time: Using the same people, technology, EPC contractors.”

Resource paradox

However, Fryklund believes governments that find a way to balance maximizing their investments and taking care of their local workforces will do well, and cites Norway as an example. Currently, several East African governments, including Mozambique and Tanzania, are revising regulations and production agreements. “Many governments in East Africa are going through debate on whether they should increase fiscal take now or choose a more balanced approach,” Fryklund says. Local content is a huge topic in several countries including Brazil, Ghana, Nigeria, and Angola. Fryklund cites Nigeria and Ghana in particular for set- ting high local content requirements 45% and 50%, respectively.

“Many countries are reconsidering local content. Nigeria set a record with Egina – 45%, but it needs to be competitive and sustainable,” he urges. “When these projects finish and work is done, you’re unemployed. Not a problem if you have more projects lined up – this is where competitiveness comes in.”

The future

In May, Italy’s ENI touted Mozambique’s latest find: a 25m gas column in good- quality Paleocene reservoir sandstones was discovered by the Agulha 2 well in Area 4, which ENI operates through ENI East Africa (70%). The find also confirmed the southern extension of the field. Total resources discovered in Area 4 are estimated at 85Tcf.

Houston-based Anadarko and ENI have teamed up to develop a two-train onshore LNG facility at Afungi in Palma, located in the Cabo Delgado province, by 2018. The partners eventually aim to have a capacity for 50MTPA of LNG.

Fryklund says what Anadarko and ENI are doing is the right idea because while they own their own trains and resources, uniting to build an onshore LNG facility will cut down on costs. He noted a similar project, Atlantic LNG in Trinidad and Tobago, serves as a model for this type of project. Current owners BP, BG Group, Shell and Trinidad and Tobago LNG hold stake in the four-train Atlantic LNG facility, which has a total production capacity of 15MPTA.

In April, ENI announced a pre- FEED for two 2.5MTPA floating LNG facilities to produce from its Mamba gas field. An investment decision is expected next year. ENI said investments in Mozambique could tally up to US$50 billion.