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Feb 9, 2017 | 17:08 GMT

2 mins read

The Future of Mozambique's Energy Reserves

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The Future of Mozambique's Energy Reserves

In addition to the political uncertainty that Mozambique's financial problems could introduce, they may hinder the development of its considerable natural gas resources. The country's offshore natural gas reserves could attract more than $31 billion in investment over the next five years by some estimates. One exploration block holds at least 2.1 trillion cubic meters of recoverable natural gas that could add more than $28 billion to the country's GDP over the next two decades. If the country can develop these resources, production from that block and others — not to mention possible undiscovered reserves — could put Mozambique on a similar footing with other energy producers in Africa, such as Angola.

Because Mozambique lacks the money and expertise to exploit its massive natural gas resources on its own, its future production depends on foreign energy companies. Anadarko Petroleum Corp., Eni and ExxonMobil have already invested there, and Mozambique's burgeoning energy industry could begin producing significant amounts of natural gas in the next few years. Projected global oversupplies of natural gas around the same time would probably keep prices for Mozambique's exports down at first, limiting the revenue available to help restore the country's financial health. The oil companies' need to recoup investment costs, moreover, will temporarily reduce revenue to the country under their production-sharing contracts. But once the initial growing pains are past, the country's natural gas reserves stand to fuel massive economic growth in Mozambique. An influx of energy revenues would enhance the government's ability to assert its control over the country. And in the long term, the newfound wealth could give Mozambique greater influence in East Africa. Nevertheless, the country is still in the development phase, and if its emerging corruption scandals lead to further financial and political instability, foreign energy companies may be reluctant to keep doing production deals with Maputo.

In the meantime, Mozambique must prevent delays in its debt renegotiations to pave the way for talks with the IMF and, in turn, renewed financial assistance. After its loan disbursements have resumed, Maputo can start trying to reckon with the financial mess it has gotten itself into. Its future as an energy producer depends on it.

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