The Rovuma wait
Political instability and infighting will force gas onto the back burner in 2017
For Mozambique, 2017 really ought to be the year when investors make final decisions to invest in the country's giant offshore gas projects. Alas, political instability is more likely to drag on, stifling those and other ventures.
Italy's Eni, which has successfully divided its extensive Offshore Area 4 into bite-sized projects, was hoping to make its final decision on the proposed Coral South floating liquefied natural gas project before the end of 2016. In 2017, Anadarko should get approval for its development plan for the Golfinho field in Area 1 - a more substantial undertaking that would involve onshore LNG trains.
While those projects edge ahead, the corporate scene will change. ExxonMobil is in talks to take half of Eni's stake in Area 4, leaving each with 25%; that deal should be done in 2017. Rumours that ExxonMobil wants Anadarko's project, too, have not gone away - but Anadarko has beefed up its in-house LNG capacity with hires from BG Group, and seems determined to go it alone.
But both projects still depend on final government approval - Anadarko for its plan of development, and Eni for amendments to a contract that dates from 2007 and was written with oil, rather than LNG, in mind. Separately, Exxon has been talking to the government about the tax implications of buying into the projects.
In September, just as both projects looked certain to get the go-ahead, President Filipe Nyusi sacked the energy minister, Pedro Couto, replacing him the following month with Leticia Klemens. Her immediate task, as 2017 gets underway, is to get projects off the ground more quickly than when Couto was in charge.
But if Klemens's appointment signals a desire to get things done, it does nothing to enhance Mozambique's reputation for good governance or institutional competence. Couto, considered an incorruptible technocrat, was sacked without explanation. And, although well connected in Mozambique's business world, Klemens is a newcomer to government and to the energy sector. Her appointment reflects the power struggle within the ruling party, Frelimo - a struggle that in 2017 will jeopardise not only the development of the oil and gas sector, but also Mozambique's efforts to become a peaceful and stable investment destination. Other problems complicate Nyusi's efforts to bring calm to politics and business. A negotiated peace with rebel movement Renamo has faltered. Nyusi is also fighting his party over whether to meet the IMF's demand for an independent, international audit of $2bn in sovereign guarantees for secret, quasi-private-sector defence procurement, most of which only came to light in April 2016. The discovery led to the immediate suspension of the country's IMF programme, which, in turn, led donors to suspend aid, and ratings agencies to downgrade the country. A $178m installment on one of those loans was due in May and has still not been paid; Russian bank VTB, one of the institutions at the centre of the secret deals, now fears Mozambique will default on its sovereign eurobond in March 2017.
Amid the uncertainty, petroleum regulator INP is continuing its work - recently appointing several companies to conduct geophysical surveys of almost all Mozambique's territorial waters and some onshore areas. Exploratory drilling could start in 2017 in some of the areas awarded in October 2015 under the country's fifth licensing round, as well as in an area of the Rovuma basin that Total has taken over from Petronas.
INP is also holding a tender for gas projects, including gas-to-liquids, fertiliser, and gas-to-power projects. It wants to select the winning projects by the end of 2016, and hopes agreements between project sponsors and the government can be reached in 2017. That, though, is ambitious: first gas is still a long way off and the gas that is initially made available may be just 100,000 cubic feet a day - insufficient to interest the major players.
While the world wanted more LNG and the Rovuma was coughing up large discoveries, these political obstacles looked less significant. But, in 2017, Mozambique will find investors in a choosier and more sceptical mood.
This article is part of Outlook 2017, our annual book looking at energy market trends for the year ahead. To purchase a copy, click here