Mozambique Oil & Gas: Growing competition to pipe Rovuma gas south

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CNPC subsidary CPP constructing China’s West East Pipeline. CPP has plans for Mozambique.

Two pipeline projects are vying to export gas from the Rovuma Basin in northern Mozambique to South Africa. Both projects will be expensive and could leave South Africa overly dependent on Mozambican gas, industry experts have warned, cited by Interfax. However, there is growing political momentum behind the deals, which would also ensure industrialisation throughout Mozambique and provide at least 2.5 GW of power for its southern neighbour.

The $6 billion African Renaissance Pipeline (ARP), proposed by a consortium of South African, Chinese and Mozambican investors, has made the most recent progress.

The ARP’s backers announced on Tuesday that they had signed a cooperation agreement between Mozambique’s state oil company ENH, a consortium of Mozambican private investors called Profin Consulting, South Africa’s SacOil Holdings and the China Petroleum Pipeline Bureau (CPP).

The CPP will fund and conduct a feasibility study into the proposed 2,600 km pipeline from Palma in northern Mozambique to Gauteng in South Africa, which has the option to supply neighbouring countries along the way. Should the project move forward, the CPP will also build the pipeline and raise $4.2 billion in debt financing for the deal from Chinese financial institutions.

However, the ARP’s rival pipeline Gasnosu has secured the backing of South African state power utility Eskom. Gasnosu was first proposed three years ago by Gigajoule – a South African company that operates gas-fired power plants and the gas transmission network around Maputo and Matola in southern Mozambique – in partnership with ENH.

The project will also run from northern Mozambique through the load centre around Maputo into South Africa.

“We continue to engage with the proposed [Gasnosu] developers regarding the project development cost, budget and timelines; it is anticipated that the feasibility studies will commence shortly,” an Eskom spokesperson told Natural Gas Daily on Thursday.

Should the project go ahead, Eskom is looking to construct around 5 GW of gas-fired power plants along the pipeline, with half the capacity in Mozambique and half in South Africa. “We are engaging with EDM [the national electricity utility of Mozambique] regarding the joint development of the capacity required in Mozambique,” the spokesman said.

The studies are expected to take around six months, after which Eskom will decide whether to proceed with the project. However, there are doubts over whether the cash-strapped utility can pull together the finances to support the offtake for a pipeline on this scale.

Unconfirmed supply

Gigajoule had intended to supply the pipeline with gas from the Mozambique government’s royalty payments and the domestic market obligation (DMO) of the Royuma Basin project.

However, the volume of DMO gas that will be supplied from the Rovuma Basin reserves has not yet been decided. Anadarko announced in December that it had signed a memorandum of understanding with the government to provide 2.8 million cubic metres per day (MMcm/d) of gas to Mozambique, and it is prepared to sell up to 8.5 MMcm/d of additional volumes into the domestic market as its LNG project progresses, but the final volumes and prices have still not been confirmed.

Gasnosu will be competing against other projects hoping to use DMO gas, including a 38,000 barrel per day GTL plant proposed by Shell and a giant fertiliser plant proposed by Norway’s Yara. Mozambique’s state petroleum regulator the INP and the Ministry of Mineral Resources and Energy will launch a tender to assess which will be first in line to receive the gas.

The ARP project will not be reliant on DMO gas, a source at Petrofin told Mozambican daily Mediafax on Thursday. Negotiations with Rovuma Basin operators for supply should be eased by the fact that CPP is a subsidiary of China National Petroleum Corp., a 20% shareholder in Offshore Area 4.

However, securing gas and offtakers will not be enough to ensure either project will move forward. “According to the new petroleum law of 21/2014, a tender has to be launched for the concession of a gas pipeline,” an INP spokesperson told NGD.

ARP has already positioned itself to claim a stronger foothold in Mozambique’s domestic market. Profin signed a memorandum of understanding with ENH in October 2015 to partner in gas projects in Mozambique. While the company was established as a ‘sociedade anonima’ – which means the identities of its shareholders do not have to be made public – a source told Mediafax its executive director is Olivia Machel, daughter of Samora Machel, the country’s first president.

However, Gigajoule also has close links to the political elite of Frelimo, Mozambique’s dominant political party. Gigajoule’s Mozambican subsidiary Matola Gas Co.’s Chief Executive Bruno Morgado has always been seen as close to the family of former President Joaquim Chissano, Mediafax reported.(Source: Interfax Global Energy)

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