South Africa/Mozambique Gas Pipeline Economically Unviable

  • Consultancy Fitch Solutions believes that building the 2600km gas pipeline between northern Mozambique and South Africa is increasingly unlikely because neither market generates sufficient demand to justify the investment.
  • According to consultancy, the US 6 billion investment is also economically unviable.

“The proposed pipeline, which would run from northern Mozambique to South Africa, crossing Mozambique from north to south, faces considerable risks as neither the Mozambican domestic market nor the destination South African market offer sufficient levels of demand to sustain the viability of the projects,” the consultant’s analysis of the Mozambican gas and oil sector cites.

“Several years ago, SacOil, now called Efora Energy, a South African energy company, announced an offer of US$6 billion to build the 2,600-kilometre African Renaissance pipeline to bring gas from the Rovuma Basin to Gauteng Province in South Africa,” Fitch Solutions recalls, pointing out that in addition to gas transport, the pipeline would also have brought gas to energy-based industries.

The project is expected to be led by a subsidiary of China’s national oil company, China Nacional Petroleum, which also includes Mozambican private investors, in addition to SacOil, which gives “dimension to the project, given the funding power, risk appetite and investment in infrastructure in East Africa history”.

For Fitch, “there is a significant risk of project delays due to a lack of investors in both countries; a 2,600-kilometre pipeline is costly and will encompass considerable capacity to potentiate the necessary economies of scale”.

The Mozambican government has “ambitious plans to develop a gas economy, including proposals for power and fertiliser plants and methanol” among others, but “the economic viability of several of these projects is unfavourable, so gas-based industry will have a slow evolution,” Fitch Solutions concludes.

Author: Bryan Groenendaal

Source: Fitch Solutions

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