Introduction

Since the discovery of natural gas reserves in Mozambique’s Rovuma basin has generated profound industry excitement which could propel the country as a major natural gas hub in Africa. For Mozambique, one of the world’s least developed countries, the discoveries have promised to be a game-changer. In spite of the enormous challenges facing the country, the government is determined to use the exploitation of its massive natural gas resources to achieve economic diversification through the promotion of ancillary industries that will generate the needed local value-added, employment generation and boost government foreign exchange revenues. The government considers that these benefits will in turn contribute to poverty alleviation, one of Mozambique’s key priorities. To this end, the government has implemented policy and regulatory reforms in the natural resources sector in order to create the needed enabling environment for both domestic and foreign investors. 

Natural Gas Master Plan

The Government commissioned a Natural Gas Master Plan and has considered the production of various products using natural gas. In November 2013 Mozambique Natural Gas Master Plan was submitted to the cabinet council and was approved in June 2014. The Natural Gas Master Plan sets a basic policy so that not only the export of LNG using the natural gas from Rovuma Basin but also the domestic usage of natural gas will become a driving force for industrialization in Mozambique.  Along with this commitment, the government took steps to improve the regulatory environment for hydrocarbons, including gas, the review of Petroleum Law 3/2001.  The Natural Gas Master Plan outlines two scenarios for utilization of the resource once production starts in 2018.  The first was to sell all of it in the liquefied form on the international market, and the second is to use a portion of the resource for domestic gas-based industries and export the rest. The country has been vigorously pursuing the implementation of the Gas Master Plan to ensure that it maximally benefits from the exploitation of its natural gas resources.

The country identified a number of domestic uses that the natural gas can be used as input into industrial production to create local value addition in the country.  Natural gas produced from gas fields is separated and refined to methane, ethane, propane, butane, pentane and heavier components. Methane is the main component of natural gas, being used for raw materials for methanol, ammonia (mostly used as urea and other fertilizers) and gas to liquids (GTL); and for fuel such as LNG, compressed natural gas (CNG), thermal power plants, city gas, and industrial gas. A direct reduction iron (DRI) plant reduces iron ore using natural gas. It is an iron reduction method without a blast furnace and is used mainly in natural gas-producing counties.  Electricity generated by gas turbine generators is used for the manufacturing sector as well as the household, commerce, and services sectors. An abundant supply of cheap electricity would make an attractive investment destination for power-consuming industries such as electric arc furnace (EAF) steelmaking; aluminum smelting; and chlor-alkali industry making chlorine, caustic soda, and their derivatives. 

The Government recognizes it is necessary to ensure that part of the natural gas to be produced should be used for the industrialization of the country at a price that allows the feasibility and sustainability of these industries. Therefore, the goal of the Natural Gas Master Plan is to develop a value chain for natural gas in the country so as to create local value added by connecting several activities starting from gas exploitation.

Natural Gas and Climate Change

With global concern for climate change, natural gas has significant scope for the reduction of carbon dioxide (CO2) emissions, because of its lower default carbon content of 15.3 Kg/GJ.  It is a cleaner option compared to coking coal (25.8 Kg/GJ) and crude oil (20 Kg/GJ). Natural gas is indeed an option for delivering industrial emission targets. In other words, natural gas is a bridging fuel by providing a low-carbon energy alternative to other fossil fuel sources.  Naturally, protecting the environment is a major concern of the government of most African countries and using natural gas to generate power in Africa is one way of reducing emissions that will promote clean environment.  It is estimated that global electricity demand will increase by 70% by 2035, to be facilitated by doubling gas fired electricity generation.

Furthermore, it is expected that the share of natural gas in the global energy mix will be higher than that of coal and oil by 2035, thereby strategically positioning Mozambique to benefit from the increased natural gas share in the energy mix. With a current electrification rate of only 29%, the Government of Mozambique aims to electrify all households by 2030 and the exploitation of its natural gas resources would be important in achieving this ambitious target. Using natural gas to triple electricity consumption in Africa is estimated to produce 0.62% of annual global emissions, less than the average yearly global increase over the past decade.  Mozambique has a common propensity for natural disasters such as cyclones and other natural catastrophes.  Therefore, protecting the natural habitats and wildlife, as well as keeping the planet healthy for future generations, has long been a major concern of the government in its energy mix policy as outlined in the Natural Gas Development document.

Mozambican natural gas resources could also be used to boost the development of the country’s transport sector. The country already has 2,400 vehicles powered by compressed natural gas, including 150 municipal buses. The government is planning to increase compressed natural gas vehicles including minibusses through collaboration with South Korea.  The government is committed to promoting a cleaner, fuel-efficient vehicle fleet in the country by becoming one of regional energy producers which would be supported by incorporating electric mobility as part of their fuel economy policy packages. For instance, the introduction of low sulphur fuels in 2017 had contributed to the Mozambican Government’s Five-Year Program which provides for increased access to and availability of cleaner liquid fuels that ensures the sustainable and transparent management of the environment.  Overall, natural gas provides a veritable opportunity for Mozambique to deliver durable economic development, protect the often fragile environment from damage, and support climate change action.

Enabling Infrastructures

In order to stimulate both domestic and foreign investment in the country and particularly in the natural gas sector, the government has partnered with private local and foreign investors to develop some accompanying infrastructures that will facilitate the economic diversification of the country.  One such infrastructure is the Beluluane Industrial Park and Free-Trade Zone, established as a Public-Private-Partnership between the Mozambican Government Agency for Investment & Export Promotion (APIEX) and Swiss-Mozambican investors. It is situated in Boane, Maputo Province and is home to 40 companies from 15 different countries. The park is home to Mozal, the second-largest Aluminium smelter in Africa, and employs a total workforce of 5000. Companies operating within the free-trade zone may qualify for attractive exemptions on customs duties and tax offered by the Mozambican Government.

The investment of galvanizing capacity in emerging markets has a resounding effect on the stimulation and growth of those economies. Mozambique should be no different, as a country with a coastline of over 2 470 kilometers, and with the bulk of industrialization taking place along the coast, the use of galvanizing coating is recognized as the main solution to protect steel structures used in building bridges, transmission lines and towers, highways, airports, factories and plants such as Mozambique LNG and Rovuma LNG. Preliminary estimates for galvanized steel structures of Phase 1 of Total’s LNG project will provide Mozambican companies access to more than 60,000 tons of steelwork opportunities, generating over 1,200 direct jobs valued an estimate of US$160 million. Including ExxonMobil’s Rovuma LNG and the recent announcement by Total of a possible further 2 trains, the opportunity for Mozambican fabricators could exceed 200,000 tons, generating significant employment opportunities and foreign investment into the sector.  The Managing Director of the Industrial Park, Adrian Frey, commented that “this is excellent news for all local companies that are positioning themselves as suppliers to the LNG projects and other industries. It is an important step for local content development in Mozambique.”

Moreover, the government established a new hot-dip galvanizing plant to enable local engineering contractors to bid for LNG projects. The US$12 million investment at Capital Star Steel in Beluluane Industrial Park will see the construction of the biggest industrial Hot Dip Galvanizing Plant of its kind in Mozambique. This installation will enable the production of specialized coatings for steel products that meet the international standards and requirements for gas pipelines, LNG process plants and general infrastructure. Consequently, local engineering contractors will be able to bid for the increasing demand for galvanised steelwork required by the Mozambique LNG and Rovuma LNG projects.  Commenting on the importance of this investment and the Mozambican Government’s drive for Local Content, Capital Star Steel CEO David Scheepers said: “We are proud to be part of the development of the economic structure and industrial manufacturing base of Mozambique. With an initial investment of over US$100 million in 2007, Capital Star Steel has been one of the largest investments in the Mozambican engineering sector. The galvanizing plant is another investment that will enable our sector to develop international capacity and provide services that will benefit our economy in the long run.”

Anadarko Petroleum Corp gave the green light for the construction of a $20 billion gas liquefaction and export terminal in Mozambique, the largest single LNG project approved in Africa. The project, which has committed long-term supplies to utilities, major LNG portfolio holders and state companies around the world, underscores the industry’s conviction that LNG demand will soar in years to come despite the recent slump in prices due to COVID-19 pandemic.  The gas liquefaction and export terminal is also expected to be transformational for Mozambique, one of the poorest nations on earth beset by fiscal and debt challenges and the devastating effects of two cyclones in the country, whose annual gross domestic product is only $13 billion. The government of Mozambique said the project is expected to create more than 5,000 direct jobs and 45,000 indirect jobs. With a 12.88 million tonne per year (mtpa) capacity, Mozambique LNG is one of the largest greenfield LNG facilities to have ever been approved. It involves building infrastructure to extract gas from a field offshore northern Mozambique, pump it onshore and liquefy it, ready for further export by LNG tankers. On the African east coast, the liquefaction plant will be able to sell LNG to both the lucrative Asian market, home to 75%of global LNG demand, and to the flexible European market, which helps balance global LNG trade by soaking up excess supply. The implementation of the project will no doubt boost the economy of the country in the near future.

Concluding remarks

In order to have sustainable economic development, through industrialization, Mozambique needs to increase access to power. The Mozambican Petroleum Law 21/2014, states that “Petroleum resources are assets whose proper exploitation can contribute significantly to national development.” This position is also echoed in the Mozambican Gas Masterplan, which suggests that the Government of Mozambique should develop natural resources in a manner that maximizes benefits to Mozambique’s society, in order to improve the quality of life of the people of Mozambique, while minimizing adverse social and environmental impacts.

Mozambique can benefit from the painful lessons some African petroleum-producing countries have learned up to now, from disastrous policies to successful diversification of their economies. We can also learn from positive examples, such as the twin-island of Trinidad and Tobago, which, like Mozambique, has sizeable reserves of natural gas. Government initiatives in Trinidad and Tobago led to significant foreign investment into downstream, gas-based projects. And that, in turn, sparked an increased activity in the construction, distribution, transport and manufacturing sectors. The exploitation of natural gas in Mozambique will position it to contribute to global carbon emission reductions and climate change concerns through gas-based electricity generation and the development of the transport sector with compressed natural gas powered vehicles.

Since 2008, AMETRADE has been accompanying the efforts of the government to use the country’s natural resources for achieving economic diversification and development. It does this through the bi-annual Mozambique Mining, Oil and Gas and Energy Conference and Exhibition (MMEC).  The 7th edition of the conference is scheduled to take place from 21-22 April 2021 in Maputo. The MMEC have been focusing on key developments, policies and projects in Mozambique’s extractive industries and it has become an important platform for networking by all stakeholders and highlighting the huge opportunities in these critical sectors of the economy. The main theme for the 2021 edition is “Utilizing Natural Resources as the Catalyst for Economic Development and Diversification”.  It will showcase Mozambique as a business-friendly country where policy reforms are being implemented to encourage the flow of domestic and foreign direct investment into the extractives industry. It will also contribute to achieving the objectives of promoting local content development, employment generation, improved foreign exchange earnings and wealth creation in the country.