Mozambique must seize its LNG opportunity
News that Mozambique's government has approved ExxonMobil's Rovuma liquefied natural gas (LNG) development highlights the country's opportunity to become a key supplier to energy-hungry China – but Mozambique needs to act quickly to make the most of its chances.
Research published by Standard Bank in March argues that China’s need to adopt cleaner energy and switch from coal to gas opens the door. Mozambique, the piece argues, has the chance to follow the mining and food industries in Australia and New Zealand, which have become long-term suppliers to China and so strengthened their economies.
According to McKinsey, Chinese LNG import volumes surged 52% in the first half of 2018. In the period to 2022, McKinsey says, Chinese domestic production will fail to keep pace with demand and imports will continue to rise.
But Standard Bank warns of an “immense and permanent loss” to Mozambique if projects are delayed – for example through bureaucratic slowness in processing customs paperwork.
- The bank is worried that the scale of the onshore projects needed will put an “unprecedented” strain on the country’s systems in terms of import and work permits, ID documents and construction approvals.
- Security is also an ongoing concern that the government will need to address, Standard Bank says.
Standard Bank says that Rovuma is set to trigger a cycle of foreign direct investment in Mozambique that will last a decade. The bank’s research highlights the sensitivity of cashflows from the project to a range of possible delay scenarios. which would affect the government’s ability to repay its debt. Exxon is due to take a final investment decision on Rovuma later this year.
Asian markets for Mozambique’s LNG have started to open up. On Monday, Anadarko, which has agreed to be acquired by Occidental Petroleum, said that it had signed a deal to supply Japan’s JERA, the world’s biggest buyer of LNG, as well as Taiwan’s CPC Corp. Anadarko and the other members of its consortium expect to take the final investment decision on their Offshore Area 1 project in June.
Standard Bank expects Mozambique to become the world’s fourth- or fifth-largest LNG producer over the next 30 years, and predicts that the country will be building new LNG capacity at a faster rate than Qatar.
Mozambique’s LNG projects have the potential to generate cashflow of around $100bn over their lifetimes, Akap Energy analyst Anish Kapadia argued in a piece published on Smart Karma in April. Kapadia points out that LNG catapulted Qatar into a leading position globally of GDP per head.
- Kapadia cautions that in Mozambique’s case, significant government revenues will only occur in the 2030s.
- That implies a greater need for IMF support and access to international capital markets in the near term, he argues.
- Key challenges will be the ability of partners to raise project-financing debt, and the funding of state oil company ENH’s obligations.
- According to Kapadia, ENH’s total required investment into LNG’s projects is around 50% of Mozambique’s GDP, and may increase further.
The high projected cashflow value given to Mozambique’s LNG is highly sensitive to future prices, Kapadia writes, and there is a longer term risk of these prices falling. Any delay in implementing projects could cause Mozambique to miss the boat.
A global economic slowdown in the early 2020s would lead to weaker LNG prices and lower revenues for Mozambique. That lends real urgency to getting projects approved and implemented.