Nelson Ocuane, President of the National Hydrocarbons Company (ENH), speaks with Upper Reach about Mozambique’s huge potential for oil and gas and how the sector will have positive benefits for overall social development to put the country on the right path of growth
What fundamental role will the hydrocarbons sector, and in particular ENH, play in the framework of projected 8% annual growth for the next 10 years?
Mozambique has been growing at this average rate of 8% already. What has been keeping the economy moving is agriculture, fishing and the development of infrastructures that has been taking place based on foreign direct investment. The oil and gas production have not substantially contributed to GDP yet; a large investment is being made but it does not translate into direct results. We are still going through an investment stage regarding infrastructure.
The 8% has become a reality thanks to the contribution of other sectors. As the mineral resources sector grows, the country’s growth will increase over 8%. The production will only start in 2018 with the investment that is being made now; the production’s results, the trade flow, the exportation of the product – taking into account natural gas – will only happen in that projected year. Right now there is natural gas production in Pande-Temane, but its contribution to the overall economic output is still modest.
This growth is mainly based on other sectors of the economy. It is clear that the mineral resources question provides a larger flow of goods and services and we start to have a service sector that, in a way, will improve conditions for local infrastructures. This sector gives rise to rents and new businesses that will emerge locally. At the moment the explorations and the beginning of some of the production have been playing a fundamental role in growth and in attracting FDI in areas not only linked to the gas and oil production, but also in areas that society needs, because workers who move here require basic infrastructure.
The mineral resources sector will play a bigger role when revenues become sizable. This sector will serve as a kick-start to a more aggressive and speedy development of the country, and for the establishment of infrastructure necessary to make up a more attractive private sector. Hence all will grow in an integrated way. The investment in public infrastructure will allow for better education and health for our younger population which will then guarantee the country’s economic sustainability for the next years (our pyramid shows that more than 45% of the population is young).
Our role at ENH
is to ensure that there will be enough investment so that production takes place in a sustainable way. For that we need to look at the following elements: the question of national resource production, taking into account the levels of production without compromising the reserve for long-term production; and the protection of the environment, so that the current population may enjoy the benefits of the resources without detriment to future generations. We will invest in being a dynamic element in education and in health, as both are pillars for development. We will significantly contribute by pouring the company’s earnings into public revenue.
National interest will be preserved. Around the world, the major oil and gas companies have not been set up to be flagship companies per se; they were created to protect the countries’ interests and to guarantee a balance in their energetic mix. Industrial development will only be possible by accessing energy in different ways, and we know that natural gas and oil are two of the strongest gears that make the world move today. The countries, which will not have control over those resources, will have to depend on other countries’ availability, and that will delay their economical development. When there is a small domestic gas crisis, it results into social turmoil, if we speak of an energetic world crisis it will result in big losses.
A country such as Mozambique, which has the capacity to be an energy super power, needs an emblematic company similarly to Brazil, which has Petrobas, the Netherlands with Royal Dutch and Italy’s ENI, for example. Does ENH have the same potential and ambition?
In the next 30 years ENH will grow exponentially. In the future, I believe that it will be known nearly as we know about Shell today, for example. In most African emerging countries, their national companies come into view after at least 25 years of local industrial maturity. This time is the concession period – if I start with 10% I may be able to improve the associated position to 90 or 100% in that concession, because investment costs have already been regained.
In Pande-Temane we have 25 of ENH interests represented in 3.5 TCF, that corresponds to a reserve of 1 TCF; in Bacia do Rovuma from the 150 TCF, we also have 25% that corresponds to 25 TCF.
How is the management of concurrent companies performed when it comes to the decision and to corporate and research policies? As in the case of Zone 1, where Anadarko and ENI are present, for example.
We work together, using two instruments: the exploration and Production Concessional Contract (PPC) and the Joint Cooperation Agreement.
The concession is a contract, where the government gives away to the consortium to do research, production and sale of hydrocarbons and all partners are part of this contract. The joint cooperation agreement is signed among partners, but it is an attachment to PCC. The rules of how the management of that concession will be performed are determined in that agreement which is part of the pack approved by the Cabinet. An individual is appointed, who will lead the process. Then the parts will finance their own. But technical and technological decisions will be taken in two forums: the operations committee meeting, where management decisions are made, and the technical committee meeting, where technical and technological aspects are discussed among partners to then make a decision on how to move forward. The technological aspect comprises another component: internal consultations.
We do a procurement of technologies and we we present the development plan to the government, who also has something to say in the technical aspect of this development. Only after this process we give the approval. There is a series of checks and balances that allows a discussion in its own forum and a transfer of know-how.
Because we are in 11 concessions, we benefit from understanding how ENI, Anadarko, Statoil, Sasol, etc. operate and we have carried out their evaluations. In terms of technological performance, we carry out a self-evaluation – if two are making seismic deep off-shore 3D, I am able to technologically understand who is applying the system better, without needing much investigation, and only based on data I have.
Despite our small share numerically, we are in a privileged position because we are in Mozambique and we know the technical side, the administration and legal aspects of the government. We are the ones to add value.
Where, potentially, will we find the next great gas fields in the next two years? And what are the chances of finding oil in Mozambique?
As a geologist I state that all countries that have oil also have gas, but it is not always true the other way around. Non-associated natural gas is a process that may have been oil but due to pressure, has become gas. In other words, all countries that have oil have natural gas, the inverse does not always happen.
Right now we have only found natural gas, but we are carrying out explorations to see whether we can also find oil. There are several elements to be observed and our contracts allow for hydrocarbon production, that means for both oil and gas. The results of the exploration may be one or the other, the contract highlights these aspects, and does not make a distinction. They have some terms that specifically mention processes for natural gas, as well as, for oil. The non-associated natural gas is the one that is found by itself, but it may become associated when oil is found and both are in the same well; so there are different rules when dealing with the two cases.
In regions where many discoveries of natural resources took place, technological hubs of upstream and downstream as well as services and IT were created. What are the geographic, demographic and urban plans needed to create these hubs and bring a state-of-the-art natural gas supply chain and production?
One of the decisions made by the government was that the LNG had to be in a single place. We built hubs for production in Palma, and as ENH, we asked for a 25,000 hectares reserve where ENH will place an industrial development zone and other services, from which 7,000 hectares are retained for the development of many liquefaction projects. We also have 18,000 hectares that will be split, one part for the development of other industrial areas such as GTL, fertilisers, etc., and the other part will be used for housing.
We have come up with ENH Logistics. That is pursuing the area’s territorial planning and have it working with partners on the communities’ resettling plan. The government carried out the study Gas Masterplan, where it analyses a variety of options on how to apply natural gas, so that to know what other uses may be granted to natural gas, besides exportation. We performed an analysis of the social and the economic impact. Also the repercussions of what may come from the implementation of one project and not another, the implementation of it in one place and not in the other, which projects are urgent, etc.
When it comes to the infrastructure and we mention the pipelines, are we talking about the area of Palma exclusively, or will there be another method of distribution?
The plan is to search and expand the infrastructure around the entire country; in a first phase there may be other ways. We have made a study: it is possible to take the gas to other places using trucks and making isolated networks that can be combined in the future. We also studied the possibility of building a North-South pipeline, starting in Palma to Maputo. Along this one supplying stations may be built on provinces where it goes through, giving rise to development centres. We have already performed a pre-viability study and we will continue to the viability study so that we understand in what way a project like this may be developed.
Speaking of human resources, as a company that is working hand in hand with the government to design and plan for training strategies of academic and professional staff, how is the country handling this question when it comes to natural resource management?
It is a process. The government has a training strategy: in the next four years it would comprise 400 trained people. We have verified that this number is no longer enough, and we are studying a plan for the massive training of people. That does not mean that we will be unable to send people abroad. There are agreements with other universities from the USA and Italy, for example, to study the curriculums and perform necessary adjustments to train professors within required standards.
There is also the technological aspect. It will take us around 10 years. There are practically no immediate vocational trainings; we already have high quality welders, carpenters; there are initiatives on the way. We want people to be open to these opportunities and take advantage of them. For the next 30 years a continuous massive investment has to take place. The results will be seen in the long term. It has to be a process.
The Ministry of Education, through IREP, is discussing with the industry the real needs and is adjusting the curriculums. Even in beginners’ schools, so that people will be ready, not only in the hydrocarbon sector. Since this is a transversal area, we need trained people in other sectors. We have the philosophy of involving all.
It is essential to invest in human capital.
After many years of suffering, the self-esteem of the Mozambicans is finally recovering with the mineral resources discovery, and the ENH has a principal role in this process…
We are aware of that. The responsibility is of all of us, each one in his/her dimension. We claim, with much openness and dignity, that all of what is happening is our responsibility.