South Africa Looks To Mozambique To Solve Its Energy Crisis

By Jeffrey Cavanaugh AFKI Original Published: December 17, 2014, 3:22 am

As a frontier market, the countries of Africa represent both tremendous opportunities and tremendous risks. On the risk side of the ledger are all the usual complications of international trade and investment compounded by the problems inherent in a developing, emergent continental market consisting of 54 countries and 1.1 billion people – it’s a lot to keep track of.

Luckily, the ups and downs of the African oil and gas trade aren’t one of them if you know where to look. To help with that, AFK Insider has compiled all the news you need to know now in order to slim down your risk in the weeks ahead. Let’s see what’s happening out there.

Could South Africa benefit from Mozambique’s Gas?

The general assumption when it comes to African oil and gas projects is that the vast majority of the hydrocarbons about to be unearthed from the continent’s on and offshore areas will go to feed hungry markets in developing Asia and Europe.

Indeed, not a day goes by without the business press, always keen to report last year’s story, discussing some new aspect of how Chinese or Indian businesses are joining the British, French, Italians and Americans in exploiting Africa’s resources.

None of that has changed, of course, but often lost in the hype is just how much Africa itself might benefit from oil and gas development beyond just pumping it out and shipping it overseas.

That Africa suffers from a huge energy deficit is not news to anyone, and by any standard that lack of power is a huge constraint on growth. The continent is home to roughly 15 percent of the world’s population, but accounts for just one-sixth of energy consumption per capita.

The number of Africans without access to electricity is estimated to be well over a half billion, with those in Africa’s rural communities being most in need.  In many parts of Africa, some communities area as much as several hours or even days away from ready supplies of fossil fuels.  Clearly, this needs to change if Africa is to live up to its full potential.

Fixing this has turned into an important development goal of governments and aid agencies alike, and many of the new deals that have recently sprung up in the newer African oil patches include explicit provision to use fossil fuels for domestic consumption.

However, while this is well and good for those countries with large amounts of fossil fuel reserves, for Africa’s second-biggest economy and largest manufacturing power the continent’s new bonanza of oil and gas has largely had little effect.

Indeed, today South Africa is facing rolling blackout and electricity shortages that are crippling output and leading to increased political pressure to do something, anything, to ensure the lights stay on.

This is no small matter for South Africa.  The latest round of blackouts have been ongoing since March and there is little prospect of the situation improving any time soon.  This in turn has led the world’s credit-rating agencies to reassess the country’s prospects.

S&P downgraded South Africa’s foreign debt rating to triple-B-minus in June and just recently both Fitch and S& P warned that their assessments could lead to junk-bond status if South Africa’s situation doesn’t improve soon.  Currently Fitch rates South Africa as BBB, but with a negative outlook.

So, South Africa needs more electricity, and soon. But, without much in the way of huge fossil fuel reserves besides coal and with international oil and gas exploration being cut in the wake of this year’s huge drop off in prices, what is the country to do?

Like India and China, it seems, the solution is to look abroad—only instead of searching for reserves a half-world away South Africa now looks to be setting up shop next door in Mozambique.

According to reports circling in the trade press, a joint development deal between Johannesburg-based junior SacOil, South Africa’s state-owned Public Investment Corporation and Mozambique’s state holding company Igepe has been signed to evaluate the feasibility of building a 2,600 pipeline to ship gas from Mozambique’s prolific Rovuma basin to South Africa.

As currently envisioned, the plan also calls for off-takes to be built in so that in the future other members of the Southern African Development Community might also benefit from Mozambique huge offshore gas discoveries, which have been estimated to hold somewhere between 150-200 trillion cubic feet of gas.

Presently Anadarko and Eni are the major players in bringing all this gas to market, and it is expected that gas will begin flowing from the Rouvama Basin sometime in 2018 with truly major amounts of gas coming to market two years later in 2020.

Such is the potential of all that gas that Mozambique’s government as touted large development plans that could be mistaken for those commonly trotted out by the oil-rich states in the Middle East.

Although most of this gas will no doubt feed markets outside Africa, South Africa could potentially benefit, too, and if the pipeline goes through it would deliver gas first to towns and settlements throughout Mozambique before heading into South Africa.

Once over the border it would supply the northeastern port of Richards Bay from where it will be diverted to South Africa’s central Gauteng province.

Among the enterprises to benefit would be the Saldanha Industrial Development Zone on the west coast plus the Mossel Bay gas-to-liquid plant and the Mossel Bay and Atlantis diesel-fired power stations on the south coast.

Construction of the pipeline could start in as little as three years with gas-powered power plants to follow shortly thereafter.

Needless to say, if the pipeline and its associated power plants are built then both the crippling power shortages and South Africa’s reliance on dirty coal could be greatly alleviated—all while helping to cement economic integration between the nations of Southern Africa and building up vitally needed energy infrastructure within Africa itself.  Given all the potential benefits, let’s hope the pipeline and its promise comes to fruition soon.

 

Jeffrey Cavanaugh holds a Ph.D. in political science with a specialization in international relations from the University of Illinois at Urbana-Champaign. Formerly an assistant professor of political science and public administration at Mississippi State University, he writes on global affairs and international economics for AFK Insider and Mint Press News.

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  • Marie-Lais Emond

    South Africa has been using Mozambique piped gas for half a decade already. This story is well out of date