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Mozambique’s domestic gas market

Hydrocarbon Engineering,

According to Business Monitor International (BMI), Mozambique’s Ministry of Mineral Resources has issued an international tender for a consultancy project to evaluate the potential sale of the country’s vast offshore gas resources within both domestic and regional markets.

The project will assess the economic viability of a proposed gas pipeline, and provide technical analysis of potential uses for the gas. The consultants will be paid US$ 50 million, and interested parties had until 8 October to submit their bids.

The tender follows approval of the country’s Natural Gas Master Plan in June 2014, the BMI highlights. The plan includes proposals for a 2000 km pipeline, linking the northern province of Cabo Delgado to Maputo in the south. It also looks to the growth of gas fired generation capacity in the country’s power sector and considers the use of gas in a range of domestic industries, including GTL, methanol and fertilizer plants.

LNG export facilities will be the main vehicle for monetising Mozambique’s offshore gas. However, several proposed projects could support the emergence of a larger gas market domestically. BMI does not see sufficient demand from these projects to absorb the 25% of total gas output that the government is targeting for domestic consumption. BMI also believes that the economics of many of the proposed projects will be relatively weak and suggests that few will make progress without the government’s support.

In the opinion of BMI, gas fired power plants offer the best economics. Capital costs and operating costs are both comparatively low, and the netback value of the gas is relatively high. A lack of transmission and distribution infrastructure offers some limitations, with only 20% of the population currently having access to electricity. However, increasing electrification rates is a key policy objective of the Mozambique government. Power generation is also central in supporting wider economic activity and with chronic power shortages a problem in the southern African region, there is also the opportunity to export. Given the political and economic gains, BMI sees a high probability that a number of power plant projects with progress.

In terms of industrial projects, BMI sees the strongest potential from GTL, fertilizer and steel plants. For steel and power, the required CAPEX and OPEX are both low, and although netback values are weaker, they are relatively consistent across both the high and low case forecast scenario.

The project economics of GTL are less favourable. While GTL is profitable in high oil price, low case price scenarios, MBO forecasts a marked reduction in global crude oil and product prices over their 10 year forecast period. They also note that a GTL facility would need capacity of at least 80 000 bpd in order to benefit from economies, significantly more than 40 000 bpd that has been proposed. However, a GTL plant would remove Mozambique’s dependence on imported fuels, and could offer lucrative opportunities for export. It also has significant currency politically. Hence, BMI expects to see the government offer to supply the facility from their share of gas, at a discounted rate, to ensure the plant’s profitability.

The other proposed projects – aluminium and methanol – offer poor economics and hold little political value. BMI suggests that there is a lesser chance that these projects will be developed.


BMI holds that combined the above projects will provide sufficient offtake to support the financial viability of the Delgado-Maputo pipeline. However, there is a lower probability of the development of a regional pipeline. Of the neighbouring countries, South Africa offer the most feasible export prospect. However, demand for gas in South Africa is relatively limited. Consumption has been heavily constrained by lack of supply, but various other import options have been explored.

Adapted from a report by Emma McAleavey.

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