The Gas Man Cometh

What is Shell’s current interest in Mozambique?

Shell’s interest in Mozambique is to develop a gas to liquids (GTL) project in the Cabo Delgado Province that intends to use natural gas from the Rovuma Basin to synthetically produce liquid fuel for the domestic and regional market. This project opportunity is being reviewed in partnership with the national oil company Empresa Nacional de Hidrocarbonetos (ENH) as part of the domestic gas vision created by the Mozambican government in 2014. We look forward to this potential project as it aims to diversify the future economy of Mozambique with the tremendous gas reserves of the Rovuma basin.

What is GTL mainly used for?

Gas to Liquids is a chemical transformation of natural gas to produce high quality chemical feedstock and liquid fuels, primarily gasoil and kerosene. Think of a GTL plant as a gas refinery.
It is a high purity product which can reduce local emissions, and can be used as is, without having to modify vehicle fuel tanks. For certain high end applications, such as the use of generators in confined spaces in the mining sector, customers need a low emission product and would use pure GTL gasoil. In most cases, GTL gasoil is blended with lower-grade diesel in order to create more finished product. The potential GTL plant would also produce Naphtha as a feedstock for chemical plants and kerosene which can be used to fuel airplanes.

What is the current status of Shell’s feasibility study?

Shell performed a preliminary feasibility study in 2014 that assessed different gas applications that Mozambique could consider to diversify its economy. The starting point was that Mozambique has so much gas that LNG alone cannot be the answer. Following discussions with Mozambican authorities and our partner ENH, and based on our global leadership in GTL, we signed a MoU for a full feasibility study for a potential GTL plant that would be located in the north of the country. We have now completed this feasibility study and concluded that it can be a technically and commercially viable project, assuming we can access enough gas on the right terms.

What will Shell’s contribution to the local economy be?

This potential project forms part of the government’s efforts to develop the domestic gas industry and to diversify the economy of Mozambique. The Mozambican economy of tomorrow is expected to have a huge LNG production capacity, and will therefore be extremely reliant on the international price of gas for its revenues. However, GTL could turn Mozambique from a net importer into a net exporter of oil products and end the current import dependence which consumes a substantial part of the national budget. A GTL plant would also have a major impact on the industrialisation of the country, as it would require more than 8,000 workers for construction and a further 800 workers to operate the facility effectively. Some foreign workers are expected to be needed at the start but we would aim to maximize local jobs over time, as it makes sense for the country and for us as investors. We also look at Afungi GTL to create contract opportunities for local companies and we look at implementing some of the programmes we successfully implemented in other countries to support the creation and the development of small and medium enterprises. Finally, the project would obviously add significantly to the country GDP and revenues through tax and the government’s equity in the project.

What are your expectations for 2016?

We expect the Government of Mozambique to support the creation of the domestic industry and hope Afungi GTL to be selected as one of the priority projects to realise this vision. With this in place, our project would progress with site selection, as well as with further technical and commercial agreements that are needed before Front/End Engineering and Design contracts can be awarded. Finally, GTL and other potential domestic gas projects will depend on the progress in the upstream gas development, where other IOCs play a determining role.

How do you envision the contribution of the energy sector to the local economy in the medium term?

It could be substantial! Mozambique has a tremendous resource base in terms of hydroelectricity, coal, and gas. The latter has the opportunity to place Mozambique in a competitive position vis-í -vis other resource holders. It is important for Mozambique to diversify its economy to create a wider industry base, to get a stronger export position to its SADEC neighbours, and to improve its trade balance and access to foreign currency. Synergies exist between industrial projects. Our potential GTL project would for example generate extra electricity equivalent to the whole consumption of Cabo Delgado.

What steps should be taken to ensure the fair distribution of wealth created by the energy sector?

Distribution of wealth and revenues from the natural resources has historically been a major challenge for resource holders. Governments need to create the right environment to encourage diversification and local involvement, but investors also have a role to play. We will contribute by listening to the local population’s expectations and through the application and the development of local skills and contractors, once the project would move forward to a final investment decision. As of today, the number of Mozambicans that are competitively skilled for the oil and gas sector is still limited, so we need to create and enhance technical educational institutions. Our ambition is to foster a diversified economy and we hope that our project can be one of the key enablers in making the vision of a domestic gas sector and a strongly developed Cabo Delgado region a reality. There is ample gas for LNG and for other projects to make a real impact on Mozambique’s development.