Via Eurasia Review, a look at Mozambique’s gas sector:

After years of investments and active economic presence in Africa, ENI s.p.a., the leading Italian oil company, might have achieved the biggest success of its African investment mission in Mozambique, a country whose gas deposits have the potential to become a pivot of world gas routes.

Despite some critics and environmental concerns about its involvement in the African continent (ENI has largely invested also in Congo, Angola and Nigeria), the Italian Oil company leads the operations in the Area 4 of the Mozambican territory, an area that includes the Mamba offshore fields where ENI has recently located a deposit of about 2.4 trillions metric cubic of gas.

Such a gainful presence in Mozambique brought ENI’s President to confirm during the recent visit of the Italian Prime Minister in Maputo, a 50 billion dollars investment in the country1, which has the potential to turn into a real “el dorado” for the company and its international projection.

Mozambique: a gas that looks at East

But Mozambican gas reservoirs are not appealing only for ENI. Mozambique’s proved natural gas reserves to 100 trillion cubic feet (Tcf)2 place it as the third largest proved natural gas reserve holder in Africa, after Nigeria and Algeria.

Clearly these promising statistics have catalyzed the attention of other foreign investors in the country and the potential immense economic outputs have made Mozambique an emerging pole of attraction in the geopolitics of gas.

The United States through the American company Anadarko, for example, is investing in Mozambique even before ENI’s operations in the territory and it made several natural gas discoveries in Area 1 (Prosperidade and Golfinho/Atum complexes), amounting to an estimated 45 to 70 Tcf of recoverable gas resources3. In 2011, ENI and Anadarko agreed to build the world’s second-largest liquefied natural gas plant in Mozambique to start exporting fuel in 2018. The potential buyers of this cooled gas will be, according to Anadarko’s declarations, Asian countries, which are in easy sailing distance from Mozambique. On March 2014, Anadarko announced to have signed long-term supply agreements with Asian buyers for two-thirds of the capacity of the first train of its planned liquefied natural gas project in Mozambique4.

Undoubtedly, Mozambican gas is a strategic asset above all for Asian countries: the growing demand of energy supply of these countries together with the geographical proximity of Mozambique make its gas a consistent and reliable supply channel. This can be seen by the growing economic interests of Asian explorations and producers (EP) companies in Mozambique.

In 2013, ENI divested 20 percent of its 70-percent stake in Area 4 to the China National Petroleum Corporation (CNPC) in March 2013. CNPC also gained a 28.57-percent stake in ENI’s subsidiary ENI East Africa5. Anadarko and its India-based partner Videocon are also seeking to sell a combined 20-percent stake of Area 16. In 2012 Thailand’s PTT Exploration Company outbid Royal Dutch Shell for Cove Energy acquiring the 8,5% stake in a major natural gas field in Mozambique in the Area 17. The acquisition interested also other Asian companies like the Japanese Mitsui (which already holds 20% stake in the same area), Indian Videocon and BPRL Ventures and the Malaysian Petronas8.

Growing wisely

The fact that Mozambique — and the entire East African region — is emerging as an important hydrocarbon province, above all for gas hungry countries like India and the East Asian countries is both an opportunity and a risk for the country. The amount of cash flowing from foreign investors is definitely an asset for Mozambique, being one of the poorest African economies and third from bottom on the Human Development Index9, ahead of only the Democratic Republic of Congo and Niger. The investments are mainly aimed at improving the lacking infrastructure framework essential to make Mozambican hydrocarbons available and competitive in the international market. However there are many other challenges to be overcome and possible side effects to consider.

First of all, it is fundamental that Mozambique economy grows inclusively to avoid what happened to its neighbor, Angola where the oil and gas revenues have been kept by a sole political faction generating tensions, corruption and hampering the harmonious growth of the country.

Another possible risk for Mozambique is to face what experts call “Dutch Disease”; the risk in sum that the massive increase in revenues from natural resources (or inflows of foreign aid) will shrink the competiveness of the manufacturing sector due to local currency appreciation resulting in the nation’s other exports becoming more expensive and imports becoming cheaper. Although the Mozambique Central Bank has assured that it will do all to consolidate macro-economic stability in the country10, it remains a Mozambican priority to be prepared to face this risk and follow the suggestion of economists like Joseph Stiglitz who constantly warn East African countries to do more to avoid the resource curse, including improving transparency and renegotiating bad contracts11.

Finally, a risk to consider is associated with the actual political scenario in Mozambique. If Mozambique’s leading party Fremlino, the ruling political party since 1975, when Mozambique gained independence from Portugal, appears to hold steadily on to power, growing tensions with the Renamo rebels will probably escalate fears of a return to civil war in the country. To strengthen their institutions and guarantee the adoption of the much needed oil and gas legislation, Mozambique’s political élites must then act quickly and wisely. Inclusion is the key to avoid factional interests driven by a competition for resources12 and to prevent Mozambique from political instability that would inevitably hinder the economic growth of the country in the long run.

Conclusion

Mozambican gas has the potential to influence the geopolitics of gas by becoming a potential trusted supplier of Asian economies. However, to make natural gas an asset rather than a lost opportunity Mozambique must therefore responsibly recognize the risks associated with a vertiginous and rapid growth and acts accordingly.  Only by undergoing a serious reform process and confronting its socio-political fragilities will Mozambique be ready to manage the growing interest of foreign investors in the country, to become an adult economy and to make the gas boom a dream rather than a nightmare.