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“In Mozambique, a pervasively corrupt political elite has been taking advantage of the gas wealth. The country’s poor have suffered”, declares the Norwegian aid agency Norad in its magazine Bistandsaktuelt. (20 Sept) The article was reporting on the 20 September announcement to end Norway’s “oil for development” programme, by Dag-Inge Ulstein, the outgoing International Development Minister (after the 13 September election which the left won).
Oil for Development was established in 2005 to assist partner countries in the management of oil and gas resources to promote sustainable economic growth and welfare, but now the money will be used for greener projects.
In February 2020 with full pomp and ceremony in Maputo, Ulstein and Mozambique’s Foreign Minister Veronca Macama signed a renewal of the Oil for Development Agreement while Crown Prince Haakon and President Nyusi looked on. After the signing, Ulstein admitted that the “Oil for Development” name was “out-dated”.
At the signing, Ulstein said Mozambique’s discovery of natural gas will not automatically lead to benefits for Mozambique and for development. The agreement underlines the need for openness and public scrutiny, and for an informed and strong civil society.
LNG revenues will be much lower than predicted – and not for at least 18 years
Mozambique will earn $55 bn from liquefied natural gas (LNG) in Cabo Delgado by 2048, the Instituto Nacional de Petroleo (INP) has predicted. But new studies suggest this is totally unrealistic, according to a report by Zitamar (23 Sept) based on research by OpenOil, a Berlin-based resource analysis firm. OpenOil predicts the LNG will only generate $18 bn and not be profitable for the national hydrocarbons company, ENH. Mozambique gas prices are linked to oil prices, and if oil prices stay higher, then LNG income might be $28 bn – half of what INP is predicting.
During the first 20 years, the government will get only $7.2bn. This is because the exploration and development costs are “front-loaded” and the companies will only officially make a profit and start paying tax when those costs are recouped, after 2040.
The models are based on the two LNG projects currently in development: the TotalEnergies led project nearest the coast (Area 1), now halted, and the ENI Coral Floating LNG platform due to be in place next year (Area 4). They use financial projections published by the government and the gas companies. ENH holds 10% and 15% stakes in Area 4 and Area 1, respectively, and has borrowed money from project partners to finance its equity stake in the projects. The Ministry of Economy revealed the interest rates ENH is paying the consortia – 9%-13% for Area 1 and 8.7% for Area 4 – which are much higher than assumed in the model: This further reduces the chance of ENH actually making a profit for the state.
Finally, the chart below from Zitamar (23 Sept) shows how projected revenues only jump from 2040. But that is precisely when all forecasts are that climate change cuts to fossil fuels will really start to hit production and consumption. That in turn is likely to hit oil prices. So that post-2040 profit bulge could be badly hit.
The Zitamar paper (free) is on: https://zitamar.com/the-great-gas-illusion-mozambiques-lng-revenues-may-fall-short-to-transform-the-country/
There are three other related papers cited, and all reach similar conclusions:
“Too Late to Count: a financial analysis of Mozambique’s gas sector”, Johnny West & Daniela Q. Lepiz, OpenOil, January 2021 https://drive.google.com/file/d/1FjHZRvdH7AwyTtGUJA6Ig5reISAnt0XR/view
“Government revenues from Coral FLNG, Don Hubert (PhD), Oxfam, 26 June 2020, https://www.oxfamamerica.org/explore/research-publications/government-revenues-coral-flng/
“The Mozambican Hydrocarbons Company (ENH) Could Become a Burden for the Government”, Inocência Mapisse, CIP, 2019 https://cipmoz.org/wp-content/uploads/2019/05/ENH-1-1.pdf
Source: Mozambique News Reports and Clippings
Banner image by C Morrison from Pixabay
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