Mozambique will need deeper gas discoveries to ensure diversified client base

Mozambique’s natural gas production will equal 347 bn cubic metres by 2039, meaning that it will be approaching the point at which it overtakes Algeria, the research says.

• By 2040, the Mozambique government should be collecting about $16 billion in royalties, according to Rystad.

The challenge for the country will be in ensuring a diversified client base for its production.

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

That creates the risk of an oversupplied market in the 2030s, with competition for African suppliers such as Mauritania and Mozambique being led by the US.

Long-term demand from China may not be as strong as many expect. According to research from Capital Economics in London, the best of the Chinese growth story may already be over.

• China’s GDP growth will slow to 2% by 2030 as a declining working-age population leads to weaker productivity growth. Chinese economic growth in the 2020s will average about 3%, falling to 1.5% in the 2030s, Capital Economics predicts.
• The upshot will be a shift from investment to consumer spending.

“The market will have oversupply at some point,” but prices are not likely to fall low enough to damage Mozambique’s prospects, says Bimbola Kolawole, business development manager for Africa at Rystad Energy in London.

The cost of discovery in Mozambique, at $0.24 per thousand square feet of gas, is “astonishingly affordable” and one of the lowest in the world, Rystad says.

• But Mozambique “definitely” needs a diversified client base, to include domestic consumption and neighbouring countries, Kolawole says.

Ultra-deep exploration

Rystad says that if Mozambique decides to hedge its bets and send supplies not only to China and India but also to buyers in Africa, it will likely need to tap into more challenging projects at water depths beyond 1,500 metres. This is where 60% of the country’s gas resources are located.

• Ultra-deep exploration is “always expensive,” Kolawole says. “Making discoveries in ultra-deep waters could be a challenge.”
• But even at ultra-deep levels, Mozambique would still have “competitive” costs, she argues.

Though the was a lot of “noise” about Mozambique gas discoveries in 2013, this time “there is more actionable noise,” she says. The government has shown its seriousness by producing local content specifications for tenders, she says. “I believe they’re doing more now than previously.”

Kolawole “strongly believes that Mozambique is looking at fixing its infrastructure problems.”

The tax regime, she argues, is “clear and fair.” Mozambique is doing a good job of selling itself, she says, and infrastructure projects in the country “should be attractive to investors.”

Bottom Line: Mozambique may need deeper water discoveries to be able to cover itself against the risk of relying on uncertain levels of demand from China and India.