Well over a year has passed since Mozambique’s state-owned National Hydrocarbons Company (ENH) commissioned Italian engineering firm Saipem to conduct a feasibility study into building a methanol plant in the country. The project could represent Mozambique’s latest attempt to find a domestic use for the huge quantities of gas that will be produced if and when the consortia led by TotalEnergies and ExxonMobil complete their projects in Cabo Delgado province.
The international energy companies want to produce liquefied natural gas (LNG) for export, but Mozambique has always eyed taking a significant portion of the gas for itself, to support industrialisation of the country — be it through burning the gas to generate electricity, or using it as a feedstock to produce other commodities: liquid fuels such as diesel, or fertiliser, and now methanol.
But the history of domestic gas projects in the country is not positive. Plans to build a plant to convert gas to liquid fuel, and another to produce fertiliser, have fallen by the wayside. Could this time be different?
Methanol a ‘cornerstone’ for Mozambique
“Methanol has always been at the cornerstone of our focus,” ENH told Zitamar News in May this year, citing its widespread use. The company suggested that methanol could be used to create products like ammonia, plastics, varnishes, medicines, adhesives, textiles and petrol.
Converting natural gas into methanol is “very easy,” says Nuno Faisca of consultancy Wood Mackenzie. “There's a huge [global] methanol market…it's widely traded. You would be able to place it easily in export markets, at the right price.”
Until 2010 methanol was mainly used to produce formaldehyde and acetic acid, Faisca explained, but since then, China has started converting methanol into plastics, creating a huge new source of demand for the liquid. “There will be some oversupply in the coming years,” Faisca said, “but if a project takes about four or five years to build after the initial agreements, then you’re looking to a horizon where the capacity of a new build could be placed in the international markets.”
China does produce its own methanol from coal, Faisca said, but there are methanol-to-plastics facilities on the Chinese coast which import methanol from international markets. “Those would be the obvious targets,” he said, “because of the sheer volumes of imports.”
For export, or the domestic market?
When ENH commissioned Saipem to conduct the feasibility study, in June 2022, it said it expected preliminary results to be presented by November that year. 15 months on, no results have been made public, though ENH told Zitamar in May 2023 that assessments conducted by then had “revealed a critical mass” of demand, both regionally and globally, for the putative plant’s output.
ENH was unclear on what the methanol might be used for within Mozambique. “The methanol market in Mozambique is not yet mature,” the company told Zitamar, adding that as a result, it planned to export some of the methanol while growing the domestic market.
Faisca is clear that “the development of a methanol project in Mozambique should be looked at from a monetisation point of view, and not as a market pull for methanol” — that is, it is a way of making money from methanol, rather than a way of developing a local market for it.
Gas at what price?
However, questions remain over whether the plant can be competitive. Previous plans to build industrial projects to process Mozambique’s gas have failed over the price at which the gas would be supplied by the LNG projects which are intended to start producing gas over the next few years.
The government did want TotalEnergies and ExxonMobil – the developers of the offshore gas concession areas in the Rovuma basin – to offer the domestic gas at “cost plus” pricing: the cost of delivering the domestic gas to users, plus a negotiable “fair return.”
However, the energy companies have argued that the pricing should instead be based on a “netback” model, which is the value of the gas on the international market, less transport costs.
Norwegian fertiliser giant Yara cancelled its project to build a fertiliser plant using gas from the Rovuma Basin in 2020. Yara had been seeking gas at $0.75 per gigajoule (GJ), while the gas production project being developed by TotalEnergies under the name Mozambique LNG was proposing to deliver it at $2.50/GJ.
Shell also cancelled its plans to build a gas-to-liquids project in Cabo Delgado, after well-publicised disagreements with Anadarko, whose LNG project has since been taken over by TotalEnergies, over the amount of gas that would be provided, and at what price.
ENH told Zitamar that a gas price for a putative methanol plant is “yet to be discussed and decided.
“Our role as aggregator is to ensure a point of convergence in terms of price between the supplier and the offtaker, in other words a price that enables the supplier to bring the gas onshore and a price that enables the production of methanol at competitive market prices,” ENH continued.
Yara’s and Shell’s plans were cancelled in 2020, when gas prices were at historic lows. The Russia-Ukraine war caused them to spike in 2022, and though they have fallen back since then, the Henry Hub price — the reference used in the US and more broadly around the world — currently stands at around the $3 mark per million British thermal units (MMBtu), a unit of measurement almost equivalent to a gigajoule of energy.
Wood Mackenzie’s Nuno Faisca says that while Saudi Arabia’s successful industry was built on gas below $1 per MMBtu, $2-3 is not out of the question. “What is the right price for making a project viable depends,” he told Zitamar, though “cheap feedstock is key.”
“When you do a feasibility study of a project, there's different elements that contribute to that,” he says. “ First of all is the feedstock price range, but [there is also] the capital cost of the project, and what financing conditions that they have attached to it. Also, if there are any offtake agreements for the product.”
As a rule of thumb, Faisca says, the capital cost of a methanol plant is around $1000 per tonne of methanol producing capacity. A 1.6m tonne plant would cost $1.6bn to build.
ENH said they were basing their feasibility study on 100 thousand cubic feet per day of gas. Based on other methanol plants around the world, that could make around 1.2m tonnes a year of methanol, suggesting a $1.2bn capital cost.
When and where?
ENH told Zitamar that it was working with Saipem to finish the study and to deliver the results in the next few months. Should the study find that the project was feasible, a timeline for developing it would be “directly linked to the delivery of the first gas from Area 1 Mozambique LNG,” it added. The Mozambique LNG project was already under construction when work was suspended and staff pulled out following a major attack by insurgents on the neighbouring town of Palma in March 2021. Preparatory work is now going on, however, ahead of an expected resumption of construction work later this year.
A source familiar with the LNG sector in Mozambique said that the most likely location for a methanol plant would be within a secure perimeter surrounding the LNG projects on the Afungi peninsula in Cabo Delgado. Given the persistence of the insurgency, this may be the only way of guaranteeing a secure supply of gas to the site.
The government is also considering how to get gas to the rest of the country, either by investing in pipeline infrastructure, or in small-scale liquefaction to produce LNG which could be transported by sea further south, to regasification termini which could be built at the ports of Nacala, Beira, and Maputo, or at Matola, where plans for such a facility are already advanced. A methanol plant could in theory therefore be established close to one of those ports.
The source close to the LNG sector told Zitamar that they were sceptical of the economics for a “world scale” methanol plant in Mozambique, citing the problem of not enough cheap gas, which defeated earlier plans for fertiliser and gas-to-liquids plants.
But, ENH argued, “there are lessons learned from those projects that will help mitigate risks associated with the development of projects of this magnitude. We cannot stop developing projects because other projects failed.”
James Walker also contributed to this report.
This article by Zitamar News was supported by the African Climate Foundation.