Mozambique may struggle to find funds for LNG ambitions -experts

Fri Mar 28, 2014 9:17am EDT

Related Topics

* Agencies rate Mozambique credit as highly speculative

* Country faces developed LNG competitors with top ratings

* Australia, N.America, E.Africa all want to sell to Asia

By Henning Gloystein

MAPUTO, March 28 (Reuters) - Mozambique may struggle to find all the investment finance it needs for its ambitious liquefied natural gas (LNG) projects as it must compete with top-rated developed economies with similar big LNG export plans, regional energy and finance experts said.

Some of the world's biggest offshore natural gas fields lie off Mozambique, which despite recent coal and gas discoveries remains among the least developed nations on the planet.

Lacking the capital to develop multi-billion dollar LNG export terminals by itself, Mozambique must attract foreign investment for financing. To encourage this investment, the government is planning to introduce new energy and mining laws that will set a clear regulatory and taxation environment.

"The oil and gas law is currently at the parliament. The parliament is going to approve the bill in its next session," s Minister of Natural Resources Esperanca Bias told Reuters. She said the law would be approved within months.

Italy's Eni and U.S. company Anadarko are among major investors who are aiming to launch LNG exports from Mozambique in 2018.

But experts say Mozambique may have trouble finding all the financing it needs to expand its promising energy sector as other potential LNG exporters offer a less risky environment.

Mozambique is holding an election in October to elect a successor to President Armando Guebuza, who has served two terms and cannot stand again. Small-scale attacks over the last year by armed partisans of the Renamo opposition movement, the former enemy of Guebuza's Frelimo party in a 1975-1992 civil war, have raised some concerns about long-term security.

CHALLENGE RAISING CASH

"Mozambique's credit rating is substantially below investment grade, and it may face trouble finding the necessary cash in an environment in which several countries are vying for investment to begin gas exports," said Paul Eardley-Taylor, head of oil and gas for Southern Africa at Standard Bank, during an energy conference in Mozambique's capital Maputo this week.

"Canada, the United States and Australia, which are all introducing LNG export facilities or planning to build them, have much better ratings and this means they will find it easier than Mozambique to attract the necessary capital."

Leading rating agencies Standard & Poors, Fitch, and Moody's all class Mozambique's credit rating as highly speculative.

The southeast African nation, which is still trying to rebuild more than two decades after the end of its devastating civil war, will face tough competition from other gas producers all wanting to sell to the same Asian markets.

"Australia, North America and East Africa all want to sell their LNG to Asia. There will be more gas than needed, so those who get to the market first and cheapest will win," said Ebbie Haan, managing director of South Africa's Sasol Petroleum International.

Frank van Ginhoven, senior vice president at U.S. engineering company Fluor, which is involved in Mozambique's LNG development, warned too that major energy projects like LNG terminals failed "at an alarming rate" due to labour accidents, cost overruns and late deliveries.

Besides racing to beat LNG competitors, Mozambique is also looking to gas exports to raise the government's revenues and reduce a heavy dependency on donor aid which it has relied on since independence from Portugal in 1975. (Additional reporting by Manuel Mucari; Editing by Pascal Fletcher/Mark Heinrich)

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