Monetising Mozambique’s gas

By Ian Simm

Mozambique is home to some of to the largest gas finds made in recent years – “large enough to satisfy 10 trains of LNG and several domestic mega-projects,” according to the country’s gas master plan.

Neighbouring Tanzania has also made finds that, while dwarfed by those of Mozambique, are significant in their own right. Added together, and coupled with considerable recent oil strikes in Uganda and Kenya, they have drawn a great deal of attention to East Africa.

Indeed, at October’s East Africa Oil and Gas Summit held in London, a great deal of excitement surrounded the presentation of Tavares Martinho, exploration manager for Mozambique’s state-owned Empresa Nacional de Hidrocarbonetos (ENH), who noted that out of the 23 wells drilled in the country, only two were not considered commercially viable.

Of a total of 170 trillion cubic feet (4.8 trillion cubic metres) of Mozambican gas, around 100 tcf (2.8 tcm) is recoverable, and with further exploration, the total reserves could reach 200-250 tcf (5.7-7 tcm). High hopes indeed.

With numbers like these being trumpeted, it is no wonder that industry executives and commentators alike have spoken of Mozambique becoming a regional energy hub. The discovery of oil, while not commercially viable, has given hope that the area may also hold liquid hydrocarbons.

And north of the border, several major finds have taken total Tanzanian gas reserves up to around 33 tcf (935 bcm).

Reserves

The largest of Mozambique’s finds have been made in Areas 1 and 4. In offshore Area 1 – which covers around 2.6 million acres (10,683 square km) in the deepwater Rovuma Basin – operator Anadarko and its partners have drilled 11 successful wells.

Nine of these were in the Prosperidade complex, and the other two are located in the Golfinho/Atum complex. Prosperidade holds 17-30 tcf (481-850 bcm) or more of estimated recoverable resources.

Golfinho, which was discovered in May 2012, is located around 32 km northwest of Prosperidade, and was followed by the Atum discovery in June. The complex is estimated to hold 10-30 tcf (283-850 bcm) of recoverable gas.

Anadarko holds an operating 36.5% working interest in Area 1, and is partnered by Mitsui E&P Mozambique Area 1 (20%), BPRL Ventures Mozambique (10%), Videocon Mozambique Rovuma 1 (10%) and Cove Energy Mozambique Rovuma Offshore (8.5%), while ENH holds a 15% interest, which  is carried through the exploration phase.

To the east, Italy’s Eni and its partners discovered the Mamba complex in late 2011. Located in the 17,646-square km Area 4, Mamba is thought to hold 30 tcf (850 bcm) or more of gas in place.

Eni is the operator of Area 4 with a 70% stake, and is joined by Portugal’s Galp Energia (10%), South Korea’s KOGAS (10%) and ENH (10%, carried through the exploration phase).

 

Big difference

While gas looks likely to present a prosperous future for both Tanzania and Mozambique, David Ledesma, an independent strategy and LNG consultant at South Court, told me in early February that the differences were stark. “Tanzania has quite a lot of gas, while Mozambique’s reserves are vast.”

“It is important to note that the amount of gas in Mozambique is so great that it can do what it wants,” he said, noting that Mozambique’s gas consumption is negligible compared to its reserves, and that the country can therefore export vast quantities. According to the US Energy Information Administration (EIA), Mozambique’s population of 22.9 million people consumed only 18 bcf (510 million cubic metres) per day of gas and 109,000 barrels per day of oil in 2011. Clearly Mozambique has enough gas to cater to local demand without putting much of a dent in the volume it can put to other uses. Indeed, Ledesma said: “There is the ability to utilise all forms of gas monetisation.”

Putting it to use

Unsurprisingly, most of the talk about the monetisation of Mozambique’s gas has been focused on LNG.

According to the country’s gas master plan, the first train is expected to come on line in 2018, with two further trains coming on line every two years, reaching a total of 10 trains by around 2028. This would put it on a par with current LNG export champion Qatar, which ships around 77 million tonnes per year.

Ledesma noted that while Mozambique’s resource was sufficient to provide for 10 trains, the number of major LNG projects slated to come on line in the coming decade worldwide would bring fierce supply competition.

Mozambique’s location puts it at an advantage for providing gas to Asian markets, but large Australian LNG projects will also be competing there. The US shale gale, which changed the face of the global LNG markets, is also likely to provide cheaper gas than Mozambique, while progress in China’s shale gas sector could also pose a challenge further down the line.

Mozambique has already received industry requests for a total of more than 790 bcf (22.4 bcm) per year of gas as feedstock for projects in countries including Japan, South Africa, South Korea, Germany, Norway and India. (See table)

Downstream demands

Obviously, most of Mozambique’s gas will be exported. But that begs the question, how will the remainder be processed to meet domestic needs best?

In its Middle Africa Annual Outlook for 2013 – released last week, Ecobank said: “Demand for refined products across the entire African continent is likely to rise by up to 40% to 4.3 million barrels [per day] in 2020, from just 3 million barrels 5 years ago. This will equate to roughly an annual average growth rate of between 3-4%.”

It added: “East Africa’s downstream market consumes about 328,000 bpd of petroleum products annually, and should witness a 4.5% increase to 342,000 bpd in 2013,” with diesel representing nearly 50% of the 156,000 bpd of refined products consumed in southern Africa.

“We do not expect any new capacity to be added [to southern African refining] in 2013, though a handful of refinery construction projects could start this year. One such project is the construction of Mozambique’s 350,000 bpd refinery, likely to commence in 2013 but not due for completion before 2015.”

Gas-to-liquids (GTL) technology has been mooted, but Ledesma told me that while “it would work in practice,” costs would likely prove too high for it to be viable. GTL plants tend to be large and expensive – like Qatar’s US$19 billion 140,000 bpd Pearl GTL project in Ras Laffan. However, South Africa’s Sasol has indicated that smaller plants could be profitable in Mozambique.

According to the gas master plan, if GTL were to come into play, it “could displace imports and open up regional African markets for transportation fuel.”

Power, petchems and problems

In addition to LNG and GTL, Maputo has said that we can expect to see gas-powered plants, fertiliser plants and methanol units appearing around the country. The master plan says that 150-200 MW gas-powered plants will be used for local markets and to add voltage support for the grid.

Meanwhile, around 58 new fertiliser plants – producing urea – should be brought on line in the next few years, and while excess supply in potential export target countries could make it unprofitable, locally produced urea would reduce or eliminate ongoing imports for the Mozambican agriculture sector. It noted that, despite current oversupply, methanol output would be targeted at China.

Mozambique appears set to ride the gas boom and has the potential to give its economy a full overhaul. However, there will likely be issues with local content. According to the CIA World Factbook, 45.7% of the population is 0-14 years of age.

Combined with a literacy rate of 56.1% in those older than 15, this leaves us with a populace ill-equipped to work in the energy sector. Training will be forthcoming, however, and in the interim period it is likely that an immigrant workforce will be required to get the first LNG train running.

Qatar imported more than 100,000 workers in order to build its various projects. This could prove politically difficult in East Africa and is unlikely to be replicated. Like their counterparts in Tanzania – where demonstrations about a pipeline from Mtwara last week led to several deaths – Mozambicans will want to see the benefits from the country’s new-found riches.

This leaves questions about education, contracts and cultural differences.

However, Mozambique’s enormous potential is likely to tide it over and weather even the most contentious civil storm.