The Mozambique-South Africa Gas Dynamic
Since 2004, South Africa has been importing practically all of its natural gas via a transmission pipeline from Sasol’s Pande and Temane gas fields in Mozambique. “The situation, as it is today, is that most of our power generation comes from hydroelectric at the Cahora Bassa Dam and the main off-taker is South Africa. We also possess fields in the southern part of the country where operators have tended to struggle and again the main off-taker is a South African entity, IGAS. In that sense, a good chunk of our energy resources are already being placed in South Africa,” confides Omar Mithá, chairman and CEO of Mozambique’s National Hydrocarbons Company (ENH).
“The appointment of Cyril Ramaphosa is obviously a good sign because he is manifestly pro-business, but there is still a long road to travel from words and speeches to action”
Omar Mitha, ENH
“We obviously recognize the relevance of South Africa and its excellent capacity to absorb Mozambique’s huge reserves, but we also have to be mindful of beneficiation of in-country monetization, and make sure our nation secures also benefits for itself and guarantees access to premium products within our country,” he stresses. Mithá also points to the ongoing uncertainty around South Africa’s energy policy and the fact that there is still no real clear picture over whether the future direction will be gas, nuclear, renewables or even coal. “The appointment of Cyril Ramaphosa is obviously a good sign because he is manifestly pro-business, but there is still a long road to travel from words and speeches to action,” muses the ENH boss.
“Logically South Africa should be an enduring consumer of our energy, but it makes sense from our perspective to establish a diversified client base and we would be unwise to place all our eggs in the same basket, when the political winds can prove unpredictable… Our hope is actually to access premium LNG markets in the Far East by signing contracts with big-ticket importers such as Japan,” he contemplates. Despite the obvious competition from LNG producers such as Australia, Qatar and increasingly the United States, Mozambique believes that its offering can be competitive.
“After all, importers like Japan are very concerned about security of supply and realize that it is in their own interest to spread risk across a variety of source countries so as to minimize any possibility of disruption to their supply chains. The sheer volume of reserves that we have at our disposal means we can be a reliable provider for upwards of 30 years from now,” notes Mithá.
Then there is the ongoing debate extending about whether or not it makes sense to extend South African pipeline connections north so as to tap into the Rovuma Basin. “ENH has conducted a conceptual project for a North-South pipeline, but the business worthiness of such a venture needs to be carefully calculated prior to investments being placed… The basic question remains: is it more economic to build a 6 million dollar pipeline for 2,500 kilometers or to invest in the purchase of LNG transport vehicles and rely upon South Africa building up its own regasification facilities. Pipelines take a long time to construct and there would likely be security issues to surmount all along the line. The advantage however is that we would be able to extend out such a project and establish a foothold right across the region with horizontal pipeline branches serving the mining industry in places like Zimbabwe and Zambia,” elaborates Mithá.
The LNG solution, meanwhile, would likely entail deploying small, specialized ships to sail around to a port like Cape Town. The benefits of a virtual supply chain like this are that it is easy to adjust them to shifts in the pattern of demand so you have an inherent flexibility advantage, and you can also command a higher price for LNG. “ENH actually doesn’t have a particular preference between these competing models. An in-depth economic assessment needs to be conducted that weighs up the different trade offs. We are happy to pursue whichever pathway gains the greater traction,” declares the head of the NOC.
The dynamic between South Africa and Mozambique is also evolving as the latter becomes technologically astute. In the past South Africa has posed not just as an evermore thirsty consumer of natural gas, but equally as a strong service sector hub and support for the regional hydrocarbons industry as seen from the proliferation of South African service providers delivering operational support in the southern parts of Mozambique. “The South Africans are significantly more developed than us when it comes to engineering, construction and auxiliary support functions such as logistics or catering so it is natural that you will often see them taking the lead. When it comes to expertise in LNG, however, they have little track record or historical basis. This means that we have to look further afield when we’re looking for technology transfer and sharing of know-how,” reasons Mithá.
“If we are going to really make a success of LNG then we are going to have to look beyond the region and start engaging international enterprises from around the world… Already we are taking Decisive steps to cultivate homegrown expertise in LNG by sending Mozambican nationals to the sorts of places where LNG technology is being innovated such as Australia and Indonesia. We seek to train up a cadre of young experts who can ultimately come back home and pioneer the industry in Mozambique and beyond.”
Writer: Louis Haynes