Gas

LNG revenues will be much lower than predicted - and not for at least 18 years




Mozambique will earn $55 bn from liquefied natural gas (LNG) in Cabo Delgado by 2048, the Instituto Nacional de Petroleo (INP) has predicted. But new studies suggest this is totally unrealistic, according to a report by Zitamar (23 Sept) based on research by OpenOil, a Berlin-based resource analysis firm. OpenOil predicts the LNG will only generate $18 bn and not be profitable for the national hydrocarbons company, ENH. Mozambique gas prices are linked to oil prices, and if oil prices stay higher, then LNG income might be $28 bn - half of what INP is predicting.


During the first 20 years, the government will get only $7.2bn. This is because the exploration and development costs are "front-loaded" and the companies will only officially make a profit and start paying tax when those costs are recouped, after 2040.


The models are based on the two LNG projects currently in development: the TotalEnergies led project nearest the coast (Area 1), now halted, and the ENI Coral Floating LNG platform due to be in place next year (Area 4). They use financial projections published by the government and the gas companies. ENH holds 10% and 15% stakes in Area 4 and Area 1, respectively, and has borrowed money from project partners to finance its equity stake in the projects. The Ministry of Economy revealed the interest rates ENH is paying the consortia - 9%-13% for Area 1 and 8.7% for Area 4 - which are much higher than assumed in the model: This further reduces the chance of ENH actually making a profit for the state.


Finally, the chart below from Zitamar (23 Sept) shows how projected revenues only jump from 2040. But that is precisely when all forecasts are that climate change cuts to fossil fuels will really start to hit production and consumption. That in turn is likely to hit oil prices. So that post-2040 profit bulge could be badly hit.



The Zitamar paper (free) is on: https://zitamar.com/the-great-gas-illusion-mozambiques-lng-revenues-may-fall-short-to-transform-the-country/

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