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Massive Gas Fields Discovered Off Mozambique

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Delia Robertson

International energy companies say they have discovered potentially massive natural gas fields off the coast of Mozambique.

The Italian energy firm ENI last month announced two major finds in the Mamba South gas fields off Mozambique's northeastern coast.  The company said the field, located 45 kilometers off Cabo Delgado province, could yield more than 22 trillion cubic feet of natural gas.

The announcement follows that of the American oil company Anadarko, which said its gas fields in the same area could yield up to 10 trillion cubic feet of natural gas.  And, Britain's Cove Energy PLC estimates it exploration field in the same area could eventually yield 40 trillion cubic feet of gas.

Gas flows are expected to come on line between 2014 and 2016.

"It is big," noted Tony Twine is director and senior economist at Econometrix, South Africa's largest independent macro-economic consultant firm. "It would provide about $150 billion at 2010 gas prices, it really is a significant find.  Incidentally, $150 billion is equivalent to ten full years of Mozambique gross domestic product.  So relative to their other sources of income, this is massive."

Twine says the fields are huge by any standards and promise an enormous financial windfall for the country.

Mozambique is one of the world's poorest countries, having emerged from a 15-year civil war in 1992 with its infrastructure devastated and its economy shattered.  The country has made many gains since then and continues to be one of the continent's fastest growing economies.  Even so, economists note this growth comes off a very small base, and that most Mozambicans still live on less than $1.25 a day.

Arsenio Mabote, the chief executive officer of Mozambique's National Petroleum Institute (INP) says the financial benefits from the gas must be used to develop the country's economy and its citizens.

"As I told you employment is very important to us, improvement of different infrastructure is very important for us, build up capacity," Mabote said. "Training of Mozambican employees is part of the package that we would like to see so that by exploiting natural resources like natural gas, will benefit the country."

And, Mabote sees benefits too for Cabo Delgado province where there have been almost no infrastructure improvements since the end of the civil war, two decades ago.

"It will enable us also to improve our basic infrastructure," Mabote added.  "As a matter of fact, if you look at Pemba where the gas discoveries are being made, you have no adequate infrastructure there, by implementing these kind of projects will definitely increase the infrastructure situation, improve the infrastructure situation."

Mobote says the country will also be looking to added-value projects to ensure even greater income and build capacity in Mozambique.

"Implementation of projects that add value to the gas in Mozambique - such as liquefied natural gas, ammonia projects, fertilizers, methanol projects, power generation projects - those projects will have a lot of importance because they will possible build up capacity in the country, train a lot of technicians as well and high-level technical people to work for those projects," Mobote  explained.

Economist Twine says that these are the dream projects that promise unbelievably high macro-economic gains.  But he says, even without the dream projects, Mozambique stands to gain well beyond the simple cash flow generate by exploiting the gas fields from royalties, mining rights, taxes on profits and personal incomes generated both upstream and downstream from the actual gas extraction.

"So the eventual Mozambican fiscal take, at a rough guess would probably be around about 30 percent of the total value added, which I guess would be in the region of $100 billion for the life of the project," Twine noted.  "So about $35 billion, which is 3 1/2 years' worth of Mozambican GDP, just popping up as direct revenue to the Mozambican government."

Twine says the benefits of such large gas fields will also flow to other countries in the region, such as Zimbabwe, Malawi and especially for South Africa, Mozambique's largest trading partner.

"And a rule of thumb applied by economists in South Africa is that for every dollar that is spent on Mozambique, wherever the dollar comes from, it doesn't matter for every dollar, 60 cents of that dollar in turn is spent on goods and services emanating from South Africa.  So even for its large economy neighbor South Africa, it would be very, very big," Twine added.

Large energy projects around the globe are often accompanied by corruption, where the cash flows often do not reach the national treasury.  Twine notes that in Angola, between 80 and 90 percent of oil revenues go missing.  But he says that in existing onshore gas projects in Mozambique the picture is very different and that revenues appear to go where they should.  He says this is encouraging for the potentially massive revenue windfall anticipated in Mozambique.

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