The Gas Bonanza in Mozambique

China-US Focus

May 24, 2013

Mozambican President Armando Guebuza’s week-long working visit to Beijing this month solidified greatly strengthened relations between his southern African country, once very poor and with limited prospects, and President Xi Jinping’s China. Their bilateral trade is up 40 percent since last year, to $1.3 billion, dwarfing Mozambique’s trade with Europe, the United States, and neighboring South Africa.  

Although China is already constructing a ring road around Maputo, Mozambique’s capital, and building an important bridge nearby, its most notable addition to Mozambique’s limited infrastructure is a national stadium, now being erected in Maputo. The total cost of all three projects is well over $1 billion. China has also been negotiating with Mozambique to build an environmentally questionable dam across the Zambezi River, downstream from the existing Cahora Bassa hydroelectric installation, another dam on the Pungue River, and is discussing building new roads in Mozambique’s vast and underserved north.

All of this new Chinese investment in infrastructure is helping Mozambique grow economically at more than 7 per cent a year, one of the more accelerated rates in today’s sub-Saharan Africa. Mozambique also benefits from a massive foreign-owned aluminum smelter and shipments to and from South Africa’s industrial heartland through the Maputo port.           

But natural gas is the big driver of Mozambique’s anticipated shift from being one of Africa’s poorest and least advantaged nations to a potential position as a major source of new prosperity. Last month, building on two year’s worth of unexpected findings, American and Indian exploration firms proved another major deposit of natural gas in Indian Ocean waters near the mouth of the Rovuma River (which divides Tanzania from Mozambique). Earlier, an Italian oil firm had announced its own finding of vast gas pools offshore, as had British, Japanese, and Mozambican petroleum companies. The latest industry estimates are that there are more than 130 trillion cubic feet of natural gas in the offshore Rovuma basin. Mozambique is poised to become the world’s fifth largest supplier of gas. It is believed that the natural gas deposits off the Rovuma River comprise the southernmost extension of a colossal gas field extending north to Zanzibar and Kenya.           

Mozambique recently auctioned another twelve new petroleum and natural gas exploration blocks in its territorial waters. Many of the globe’s large natural resource firms were set to bid, given the belief in such circles that another 150 trillion cubic feet of gas remains to be discovered off Mozambique. That is in addition to the Rovuma basin deposits, estimated currently to be capable of providing gas sufficient to meet the needs of half of Europe for fifteen years. The production of gas from the existing wells is expected to begin in 2018.           

These gas discoveries have vaulted Mozambique into the big resource leagues after long decades of having almost nothing to export to the world except for hydroelectric power and cashews. Now, in addition to the gas bonanza, Brazil’s largest industrial conglomerate is set to mine a massive re-discovered deposit of coal in the middle of Mozambique, near Tete. Although known about since the later years of the nineteenth century, the size and quality of this coal deposit was only demonstrated recently.           

When Presidents Xi and Guebuza this month toasted their mutual national ties of “friendship, solidarity, and cooperation” in Beijing, these new mineral finds would have formed the obvious backdrop to their discussions. Chinese firms have already been exploring for oil and gas off Mozambique and Kenya (as well as off the west coast of Africa), and China’s own future industrial growth will in part depend on imports not only of Africa’s petroleum (of which China is a key purchaser) but now of Africa’s gas and coal. Mozambique will need to liquefy its gas to ship to Asia and Europe. Liquefaction plants are very costly. There could well thus be a role for China in assisting in such complex construction efforts on land in northern Mozambique, or elsewhere.               

Mozambique is about to be transformed economically by these new natural resource discoveries. China, as the tête-à-tête in Beijing demonstrated, wants to assist such important developments in Mozambique. If everything goes smoothly, and if China continues to invest as significantly in Africa as it has been doing since 2006, Mozambique’s impoverished and poorly schooled people could reap significant social benefits on the back of gas and coal exports to China and Europe, thus giving real meaning to the mutual expressions of solidarity and cooperation.

The opinions expressed in this article/multimedia are those of the author(s) and do not necessarily reflect the views of CIGI or its Board of Directors.

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