Southern Africa’s gas prospects [NGW Magazine]

The Covid-19 pandemic and the consequent price drop may have forced US major ExxonMobil to defer final investment decision on its integrated gas project in Mozambique. But development of two other projects and work to set up a gas revenue-backed sovereign wealth fund in that country are continuing regardless and gas prices are also improving globally. 

Also, the French major Total announced in October a substantial offshore discovery in neighbouring South Africa, while Tanzania’s president John Magafuli – re-elected in October, amid claims of fraud – has restated his commitment to resume negotiations with international oil companies who want to build a $30bn LNG plant south of the country. Geological rather than commercial or political risk might still prove the stumbling block in that case however.

‘’It goes without saying that Africa has witnessed its fair share of difficult times this year,” said African Energy Chamber chairman, Nj Ayuk presenting the African Energy Outlook 2021 on November 10.

“Even though oil and gas activities have taken a hit, optimism surrounding African projects, the fiscal regime and investments still exists but requires all of us as stakeholders to do more. There has always been opportunity in drastic and unprecedented times, which gives us a lot to look forward to.”

Developing Total’s discoveries on top of those made by others would assist in meeting a shortfall likely to emerge in South Africa in the next three years when older, onshore acreage in neighbouring Mozambique, which exports gas by pipe, are depleted. South Africa’s Integrated Resource Plan, released in October 2019, projects a greater contribution of hydrocarbons in the energy mix by 2030, up to about 8.1 GW.

More investment is expected once South Africa enacts the Upstream Petroleum Resources Development (UPRD) Act early next year to create greater regulatory certainty.

Mozambique’s three large liquefied natural gas (LNG) projects are advancing despite Covid-19. Total and its partners, some of whose workers were infected at the site where they are building an onshore LNG plant, is forging ahead, a year after taking final investment decision (FID). The partners have resettled hundreds who have been displaced by the Area One project, built an airport and other facilities. Total, Japan’s Mitsui, state ENH, Thailand’s PTT and India’s ONGC Videsh, Bharat Petroleum Resources and Oil India will invest $20bn constructing the 12.9mn metric tons (mt)/yr onshore facility near their 18 trillion ft³ deep-water Rovuma Basin discovery. Drilling is due in the second half of next year, three years before first gas.

ExxonMobil is expected to take FID for its Area Four project of the same basin in 2021 ahead of production between 2025 and 2026. With partners Italian Eni, Portuguese Galp Energia, South Korea’s Kogas, China National Petroleum Corp and ENH, the total investment will be $30bn for the 15.2mn mt/yr facility. 

On November 5 Italian energy company, ENI announced that the last of the 13 “topside modules” had been lifted and installed on the hull of the floating liquefied natural gas (FLNG) facility, under construction in South Korea and destined for the Coral South field in Area Four of the Rovuma Basin off the coast of Mozambique where it would extract and process gas starting in 2022.

The $4.6bn Coral South FLNG will have 3.4mn mt/yr capacity from the 16 trillion ft³ field, which it found in 2012.

The oil majors have discovered up to 180 trillion ft³ of offshore natural gas and the government estimates that the three projects will earn it about $95bn over their lifespan and create tens of thousands of jobs while stimulating wider development in the impoverished country.

It expects to derive greater benefit if the domestic portion of gas from the Total and ExxonMobil-led investments is developed. All three Mozambican projects are export-oriented but a small portion of the output will be set aside for local power, fertiliser and liquids production although the latter looks a remote possibility now.

The executive chairman of the Mozambican Oil and Gas Chamber Florival Mucave, in an October 19 statement, said domestic gas will ensure more sustainable benefits accruing to the economy. Only 29% of the Mozambican population has access to electricity, he said, while agriculture, which provides jobs for four out of five nationals generates just a quarter of its gross domestic product. It has traditionally underperformed because of a lack of farm inputs, especially fertiliser. As a consequence, “too many of our farmers still live in abject poverty,” said Mucave. “That can be changed, though. Simply by using fertilisers, farmers can enhance their yield by nearly 40%.... Mozambique could reduce significantly its imports of agricultural products from South Africa and become an affordable source of food for domestic consumption.”

Yara, Great Lakes Africa Energy and Anglo-Dutch Shell won domestic purchase tenders in 2016 to use gas produced offshore by Total, Eni and ExxonMobil to produce fertilizer, electricity and liquids respectively. Since then, Shell has decided not to pursue gas to liquids further: "We will remain selective in our investments in LNG and we don't expect to develop new greenfield gas to liquids projects anymore," CEO Ben van Beurden said announcing the company’s Q3 2020 results.

A report released in August by global consultancy firm Deloitte said when the domestic gas market is established, developers and consumers would benefit from natural gas prices that would be lower than the other options such as diesel and electricity.  At that time, the local gas price would begin to track the international one.

SADC boost

In a significant move to boost investment into natural gas , the Southern African Development Community (SADC), a grouping of 16 countries, approved in October a regional natural gas development plan.

In August 2018, SADC constituted an inter-state gas committee to promote the inclusion of natural gas into the regional energy mix for industrial development.  They started developing the regional as master plan (RGMP) phase one which they approved at a meeting on October 30 this year. The 28-page plan says:

“Developing the regional market requires a concerted and co-ordinated approach by SADC member states, with a focus on key dimensions for development. The key dimensions were selected based on the centrality to the integration and development of a regional market and provided a consistent framework in analysing each member state and the requirements for standardisation and harmonisation.” 

The Development Bank of South Africa (DBSA), already heavily involved in the regional gas market, financed the development of the blueprint.

DBSA is among the financiers of the Total-operated LNG project in Mozambique after committing $120mn to it.

The RGMP says natural gas is gaining significance in southern African countries such as Angola, Democratic Republic of Congo (DRC), Madagascar, Mozambique, Namibia, South Africa, Tanzania, Botswana and Zimbabwe.  The main producers are Tanzania, DRC, Mozambique and Angola, the last of which for now is the only LNG producer in the region.

The study found that SADC’s liquefaction capacity is likely to increase to 36.7mn mt/yr over the next few years with the installation of new liquefaction trains in Mozambique and possibly Tanzania. 

It recommended the establishment of a regional gas grid and that “integrated conventional LNG, small-scale LNG, and pipeline options should all be considered to ensure maximum demand aggregation while minimising unnecessary and unaffordable infrastructure and capital expenditure. Taxes incentivise or disincentivise fuel choices, while grants, subsidies, and developing economies of scale as the adoption of new technology increases, can offset capital costs.”

In Zimbabwe, an Australian upstream minnow Invictus Energy has successfully concluded its field operations and exploration programme in the Cabora Bassa Basin north-east of the country where about 9 trillion ft³ of gas could lie.

“The company is making significant progress on executing the first seismic acquisition program in the country for 30 years and is working closely with the seismic contractors on a planned acquisition campaign in 2021 to commence once the rainy season has concluded. This will be followed by a high impact basin opening drilling campaign to test the petroleum potential of the Cabora Bassa Basin,” said the company in a December 2 update.