ON THE BLOCKS

Mozambique 2013 | ENERGY | REVIEW: ENERGY

Ongoing finds of natural gas and coal deposits are whetting the appetite of multinational resource giants, as the country begins to consider how it can use the potential wealth to reboot the national economy.

Mozambique's natural gas find is the gift that keeps on giving and puts the country at the top of the world's most exciting energy spots. The offshore gas discoveries by Anadarko and ENI are expected to transform Mozambique's economy through LNG development and staggering inflows once the resources come on-stream in 2018. The national oil company Empresa Nacional de Hidrocarbonetos (ENH) is currently playing a minimized role in holding between 10% to 12% stakes, in the blocks, but has its eye firmly on larger gains with plans to expand into logistics, larger stakes and eventually control. The country's onshore gas discoveries and production capabilities in Pande and Temane have been expanded to increase production capacity to 183 million gigajoules, the vast majority of which is exported to South Africa.

Mozambique's draft Natural Gas Masterplan, compiled by consultancy firm ICF International in coordination with the Mozambican government for the World Bank, outlines its recommendations for the government's decision-making timeline. Gas majors Anadarko and ENI as well as other interested parties will be keeping a close eye on the recommendations to get LNG development in place as soon as possible as well as to work to establish the price of gas going into the LNG plant. Minister of Natural Resources Esperanca Bias has made it clear that the government strongly expects the gas companies to work together to construct one, shared LNG plant. The project will be a massive development opportunity for the area. President of Anadarko Mozambique John Peffer told TBY, “For the LNG plant, including the liquefaction facilities, upstream development, and transportation we expect to invest about $15 billion to complete the initial two trains." These initial two trains are the forerunners for what could be up to 10 trains in the coming decades.

It is this enormous growth potential, and ICF International's estimation of Mozambique's total resource base—both discovered and undiscovered—stands at 250 trillion cubic feet (tcf), which has piqued the world's interest. Early investors in Mozambique's offshore as reserves are receiving their dues with the consolidation of blocks begun by Cove Energy, whose sale of its 8.5% share saw Royal Dutch Shell lose out to Thai Oil and gas group PTT Exploration and Production's $1.9 billion bid to secure the stake. Anadarko Petroleum and Indian conglomerate Videocon are the next in line to profit heavily as they auction off a 20% stake. It is thought that the sale will go for at least $4.5 billion, although it could be higher given the further discoveries since the PTT deal. In March 2013, Eni sold a 20% stake of its Area 4 field to China's biggest state-owned energy company, China National Petroleum Corp (CNPC), for $4.2 billion.

In addition to the division of the blocks held predominantly by operators Anadarko and Eni, 2013 will see the issuance of series of exploration licenses for areas in the Rovuma and Sofala Basins. Mozambique's National Petroleum Institute (INP) has said the licences will be issued in the second half of the year, after the country's petroleum legislation is revised.

THE ROVUMA BASIN

It is the Ruvuma River, which forms the border between Mozambique and Tanzania, that is so far geographically responsible for the offshore natural gas finds in the Area 1 Block. The 800-kilometer-long drainage basin of the river is 155,500 square kilometers and is shared by operators Anadarko and Eni, with other competing interests. The Anadarko-operated Offshore Area 1 covers approximately 2.6 million acres in the deep-water Rovuma Basin. Area 1 is predicted to have 32 to 65 tcf (recoverable); approaching 100 tcf of original gas in place (OGIP).

The Offshore Area 1 partnership is operated by Anadarko (36.5% working interest), with Mitsui E&P Mozambique Area 1, Limited (20%), BPRL Ventures Mozambique B.V. (10%), Videocon Mozambique Rovuma 1 Limited (10%), and PTT Exploration and Production (8.5%). ENH's 15% interest is carried through the exploration phase.

In March 2006, the Italian group Eni was awarded a licence for the exploration of an offshore area situated in the northern part of the country, approximately 2,000 kilometers north of the capital of Maputo. The block, known as Area 4, is located in deep water up to a depth of 2,600 meters in the Rovuma Basin and covers an area of 17,646 square kilometers. Area 4 has an estimated 75 tcf of gas in place. In addition to Eni, the operator of Area 4 with a 50% participating interest, the other partners of the joint venture are Galp Energia (10%), KOGAS (10%) PetroChina Ltd., and ENH (10%, carried through the exploration phase).

OIL & DISTRIBUTION

To date, no significant volumes of oil have been discovered in Mozambique, although hope of a big find is alive and well. South African energy company Sasol, in addition to its natural gas operations, produces 1,100 barrels a day of oil per day (bbl/d) from its Inhassoro field test well. Despite the thin layer of oil, Sasol Petroleum International CEO Ebbie Haan is upbeat regarding further oil finds in Mozambique, telling TBY, “We think we're onto something that makes the Mozambique basin different from the Rovuma basin because the Mozambique basin has liquid potential."

While the local downstream market remains small given that Mozambique currently imports 99% of its petroleum, the rapid development of alternative energy sources has led to increased investment in the country's energy distribution infrastructure. The exploitation of natural gas, building of new infrastructure, and the growing import of vehicles has seen the annual growth of the sector rise to over 10%. In addition to natural gas, the Mozambican government has commissioned a feasibility study for a coal-to-liquids plant in the coal-rich region of Tete. The project aims to produce 40,000 bbl/d of transport fuel and chemical by-products from up to 17-million tons a year of low-grade, non-exportable, and non-saleable coal. The first 20,000 bbl/d would be allocated to Mozambique, which was estimated to consume 17,000 bbl/d, with excess fuel converted to chemical feedstock for export or exported directly to neighboring countries, including Tanzania, Malawi, Zambia, Botswana, and other regional SADC countries.

ELECTRICITY

While Mozambique's energy story is dominated by the natural gas discoveries, the country's tale runs much deeper. The country has long been the supplier of electricity to the region for decades thanks to the Cahora Bassa Hydroelectric Dam. The dam, originally built by the Portuguese with the sole intention to supply South Africa, now sells 70% of its output to South Africa, Zimbabwe, and Botswana and has been under the majority control of the Mozambican government (85%) since 2007. Nearly 100% of Mozambique's electricity is provided by hydropower from the dam, and energy exports made up 10.8% of the country's total and were valued at $299.5 million in 2011, an increase of 8.3% from 2010.

Since the Mozambican government liberalized the electricity market in 1997, there have been a number of key investments aimed at meeting the region's ever-increasing hunger for power. Demand for electricity grew by 15% in Mozambique in 2011 alone, with the average rise in electricity consumption among the other SADC members between 2% and 2.5%, according to Augusto Sousa, Chairman of the publicly-owned electricity company EDM. Approximately 26% of the population have access to the electricity grid, while an additional 12% rely on private generators or renewable energy.

The two most important additions to Mozambique's electricity grid and export potential are the Mphanda Nkuwa Hydropower Plant project, owned by a consortium of the national electricity company EDM, Mozambican holding firm Insitec, and Brazilian construction company Camargo Corrêa, and the Ressano Garcia gas-fired power plant, a joint venture by South Africa's Sasol and EDM. Mphanda Nkuwa is set to provide an additional 1,500 MW in capacity to the region's power pot, with 20% to stay in Mozambique.

The $2 billion project on the Zambezi River—downstream from the Cahora Bassa Dam—is key to the government's electrification strategy and is due to be completed in 2017. The Tete-Maputo energy transportation corridor project, also known as the Dorsal Spine, including Cahora Bassa (1,245 MW), Mphanda Nkuwa (1,500 MW in Phase I and 900 MW in Phase II), Boroma (200 MW), Lupata (600 MW), and e Lurio (120 MW), “will allow for the energy produced in the region to flow to large consumers at the domestic level, as well as to the regional market," according to Energy Minister Salvador Namburete.

Mozambique's second big investment in energy generation lies on the Mozambican-South African border and is a replication of a new energy project already completed in Sasolburg, South Africa, which is the largest power plant running exclusively on gas engines to be installed on the African continent. The Mozambican version, due to be completed in May 2014, has been contracted to Finnish power plant solutions provider Wärtsilä, which will engineer, supply, and install the €138 million gas-fired power plant.

In tandem with both Mozambique's natural gas and hydropower potential, numerous companies are looking to take advantage of opportunities to turn the country's massive coal reserves into energy. UK-listed firm Ncondezi Coal Company is aiming to build Mozambique's first coal-fired power station near the town of Tete in northern Mozambique. The project will be developed in phases of 300-MW units, with the first phase targeting power generation in 2017, according to Country Manager David Eshmade.