Mozambique Pins Hope on Germany to Revive Gas Industry Opportunities in 2020-21

Intensifying trade wars, geopolitical tensions in the OPEC and COVID-19 pandemic have permanently altered the Gas Industry Opportunities in 2020-21.

Gas Industry Opportunities The global gas consumption trends are on a decline following the COVID-19 pandemic. The gas prices are falling, and yet the global community of leaders and environmentalists is pushing for clean air and climate policies to reduce carbon dioxide emission levels. According to The Global Gas Report 2020, medium-term growth in the OPEC industry will come from increasing cost-competitiveness and increased global access to gas. Clearly, gas is fast establishing itself as a key player in the global energy transition dynamics as nations seek to significantly reduce carbon dioxide emissions and other air pollutants.

A particular growth opportunity exists in liquefied natural gas. LNG imports reached 482 billion cubic meters in 2019, up 13% from 2018, and while this figure is expected to fall by around 4.2% in 2020, it could rebound quickly to previous levels as soon as 2021, depending on the persistence and longevity of the pandemic.

The report was published by the International Gas Union (IGU), research company BloombergNEF (BNEF) and Snam, the Italian-headquartered international gas infrastructure company. They reviewed the key global gas industry developments over the last year, provides a high-level outlook for future gas market developments, and examines the potential of hydrogen as a clean fuel to help meet climate goals.

The key members in the oil and gas industry Mozambique and Germany have a special relationship together. The deal was formalized when the German Democratic Republic established diplomatic relationships with the then newly independent Republic of Mozambique in 1975. Since then, a great many Mozambicans have been educated in Germany. Another 20,000 were employed in Germany as contract workers.

Mozambique is an Unexplored and Untapped Territory in ONGC Industry

Mozambique holds 100 trillion cubic feet (Tcf) of proved natural gas reserves. It ranks 15th globally, however, the country is still largely underexplored. As the government continues to encourage exploration, it is likely, that the proven reserves will increase in the coming years to rival that of more established gas frontiers. Oil Majors Total, ENI and Exxon are leading development efforts expected to initially cost a combined USD 30 Billion. Committed off-takers, include EDF of France, Tokyo gas of Japan and Centrica from the UK who have all committed to being off-takers for the next two decades. Notable, however, is the absence of German companies either as operators or major off-takers, despite Germany being one of the world’s largest gas importers.

In 2019, the global oil and gas trends mildly shifted toward the Western Hemisphere producers—the United States and Brazil. Both countries are now delivering growth in supply barrels from onshore shale plays and deepwater plays, respectively. According to Deloitte, together, they added 1.4 million b/d of liquids supply (including crude oil, condensates, and NGLs) in the first nine months of 2019. In addition, the Canadian oil sands can also deliver more barrels from current projects if required by the market.

Germany is poised to join the fray in meeting the global ONGC demand and fulfill the current and future Gas Industry Opportunities in 2020-21.

Since the 1980’s, Germany has spent more than USD 1 billion in development aid to Mozambique. Whilst this is laudable, this relationship must evolve to change the focus away from aid and towards investment, in response to the numerous opportunities in gas development and other sectors.

‘Compact with Africa’ summit Witnessed Germany’s Commitment to Develop ONGC Sector in Africa

In November 2019, German Chancellor Angela Merkel announced the creation of a USD 1.1 Billion investment fund during the ‘Compact with Africa’ summit in Berlin. This fund and other institutions in Germany like the KFW development bank offer various instruments to ease German investments in Mozambique. However, there is an increasing realization, that such government initiatives to invest in Africa in general and in Mozambique, in particular, are best implemented by channeling the funds through private sector German and Mozambican companies. In a recent online conference organized by the German African Business Forum, Chancellor Angela Merkel’s personal representative to Africa, H.E Günter Nooke called German companies to take advantage of these opportunities.

German companies need to invest in the development of new gas prospects, in the servicing of the existing developments and in the building of a petrochemical sector in Mozambique. Germany has a strong petrochemical industry that can take advantage of the opportunities in Mozambique with Africa’s USD 1.2 Billion population providing a ready market for such an industry. This will ultimately lead to a win-win situation for both countries. It will not only help to generate economic growth, but will also ensure the creation of good-paying jobs, skills developing apprenticeships and the transfer of technology to Mozambique.

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Gas is fast establishing itself as a key player in the global energy transition dynamics as nations seek to significantly reduce carbon dioxide emissions and other air pollutants. The realization, that developed economies like Germany and fast-growing economies like China can only realistically-meet their emission targets without forgoing economic prosperity by adopting gas as a major source of energy has put countries with large gas resources, like Mozambique in the focus of investors. The share of gas as a primary source of energy has been steadily growing since the 90’s, and this trend is expected to continue. In China, gas now accounts for over 7% of primary energy use from about 1% in 1990. In Germany, gas accounts for 27% of primary energy use from about 15% in 1990.

German demand for gas is projected to continue its rapid growth as the country steadfastly continues to implement its in 2010 adopted energy transition strategy known as the Energiewende. According to the plan, greenhouse gas emissions are expected to reduce by at least 80% in 2050 when compared to 1990. Gas is currently Germany’s second most important energy source after oil. It imports nearly all of the gas it consumes, from Russia (40%), Norway and the Netherlands with only 5% sourced domestically. Domestic production is expected to run out within the next decade, setting Germany up for even more imports from outside. There is therefore, a general consensus in Germany that even more gas resources must be secured from abroad to ensure Germany’s economic growth prospects. Plans to source more gas from Russia have however earned the government heavy criticism, including from Germany’s American allies who see this as leading to an over-dependence on Russia and creating potential National security threat to Germany. Diversifying Germany’s sourcing of gas, from new producers like Mozambique therefore presents an attractive proposition for Germany as a nation and German companies in particular.

“It is time for German companies to play a greater role in the development of Mozambican gas industry. Germany’s needs gas and in exchange, our companies can provide investment capital, technical Know-how, technology and education” said Sebastian Wagner, Executive Chairman of the German African Business Forum.

Now more than ever, both countries must take the opportunities presented by the development of gas to strengthen their special bond. Mozambican exports to Germany currently stand at USD 270 Million USD yearly and are dominated by aluminum. This amounts to just 3% of total exports. According to Verner Ayukegba, SVP of the African Energy Chamber, there is room for growth and significant demand for German technology and investments in Mozambique.

Verner added, “Mozambique is one of the most prized investment destinations in Africa at the moment. Mozambican companies are prepared to partner with their German counterparts to service the nascent gas industry.” “We have a golden opportunity here to strengthen both Country’s economies, whilst at the same time making significant strides towards the reduction of greenhouse gasses with the promotion of gas consumption to the detriment of heavier polluters like coal”, Verner concluded.

SOURCE – African Energy Chamber