Inflated expectations?

The Norwegian Embassy organized a seminar on LNG Economics on Tuesday, November 3. The seminar, led by Don Hubert from Resources for Development Consulting, evolved around gross revenues, costs and fiscal instruments regarding LNG.After huge gas discoveries in the Rovuma Basin in Mozambique, placing the country as the third-largest natural gas reserve holder in Africa, great expectations regarding revenues were created. When Anadarko and ENI made their discoveries in 2010, it was said that Mozambique could expect billions of dollars in revenue by 2020.Don Hubert viewed these expectations as inflated. “No one builds LNG projects in less than five years”, he emphasized, underscoring that companies could also write off much of their initial costs, further delaying incomes for Mozambique.

According to Hubert, substantial incomes from the Rovuma Basin can only be expected around 2030. This is based on an assessment that a final investment decision will be taken in 2016 and a start of LNG production in 2021. The income projections differ substantially from previous estimates from the IMF. Hubert is predicting dramatically lower incomes for Mozambique in the 2020s. According to him, the reason is that the Rovuma Basin contracts signed in 2006 are designed in a way that the incomes from the first decade will flow back to the companies as cost recovery, and very limited resources will flow to the government before 2030.Representatives from the National Petroleum Institute (INP), Empresa Nacional de Hidrocarbonetos (ENH), the Ministry of Energy and Mineral Resources (MIREME), the Mozambican Tax Authority (AT) and Tribunal Administrativo were all present at the seminar, which was held at the Norwegian Embassy.