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Mauritania faces race against time to capitalise on natural gas reserves

By David Whitehouse
Posted on Friday, 1 November 2019 09:30

A truck drives near the TO-14 iron ore mine in Zouerate, Mauritania. The country's natural gas reserves give it a chance to escape iron-ore dependency. Reuters/Joe Penney

The major natural gas find offshore Mauritania announced by BP and Kosmos Energy on October 28 leaves the country urgently needing to develop infrastructure it if is to take full advantage.

The find may hold gas equal to about 8.9 billion barrels of oil equivalent and could bolster Mauritania’s hydrocarbons income significantly, says Adnane Allouaji, Middle East and Africa analyst at the Economist Intelligence Unit (EIU) in London.

The Mauritanian economy is heavily dependent on iron ore, which since July 2019 has been trading around a five-year high.

But the EIU predicts that receipts from mining will fall in 2020-21 as iron ore prices decline amid weakening Chinese demand.

  • Prices will continue to decline in the medium term, Allouaji says, making efforts to diversify Mauritania’s economy urgent.

Globally, there is currently 100mn tonnes of LNG in the pipeline waiting to be sanctioned, says Palzor Shenga, senior analyst at Rystad Energy in Norway.

  • This leads to the risk that in the 2030s, Mauritania will be competing in an over-supplied market, facing competition led by the US.

“The biggest problem is the infrastructure,” Shenga says. “It’s the first thing they have to address.” Future discoveries won’t be much help unless LNG infrastructure is developed, he says.

  • The government is attempting to address infrastructure weaknesses through public investment, but financing constraints will mean progress is slow, the EIU says in its fourth-quarter 2019 Mauritania country report.

Building a gas-processing facility will be capital intensive, but the involvement of BP should help to overcome this, Shenga argues.

Hopes dashed

Kosmos Energy, which had been planning to sell down its Mauritania and Senegal participations, has now postponed that disposal until 2020, hoping that the find will attract more potential buyers and higher bids.

Output from Mauritania’s first oil finds fell far short of initial hopes, generating little revenue, Paul Melly of the Africa Programme at Chatham House says in a paper in April.

  • Melly points to the failure of the Islamic Development Bank in 2014 to approve finance for a power project that would have been fuelled from the Banda offshore gas deposit.
  • Melly argues that Senegal has set out “an ambitious strategy for becoming a regional source of expertise and professional services for the hydrocarbons sector, whereas Mauritania has yet to outline a vision for the industry”, beyond the contribution that hydrocarbons will make to exports, energy supply and state revenue.

Allouaji at the EIU points to the example of Mozambique, still waiting to benefit from the 2010 LNG discovery in the Rovuma Basin. Egypt has benefited faster from the 2015 natural gas discovery at the Zohr field – but Egypt, Allouaji notes, has better infrastructure than Mozambique or Mauritania.

  • “It will take time for the newly discovered deposit to be developed and there will be no immediate impact on Mauritania’s revenues,” Allouaji says.

Mauritania does have some advantages. European LNG demand will peak in the mid 2030s, giving Mauritania a possible geographical advantage over competition from the US.

  • The EU is “a possible target market,” Shenga at Rystad says.
  • And in political terms, he argues, Mauritania is “more stable” than many African countries.

Bottom Line: If Mauritania delays in developing its LNG infrastructure, global oversupply could limit revenues faster than the government thinks.

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