Rui Mate analysed only Coral Sul because it is the only Cabo Delgado gas project in operation and thus the only one with published data to check his projections for the first three years - and his projections agree with public data. Coral Norte, now under construction, will look very much like Coral Sul. Both are in deep water in Area 4.
The government has three sources of income - a 2% gas royalty on all gas production, corporate income tax on investor profits, and income from the state company Empresa Nacional de Hidrocarbonetos (ENH) which has 15% participation in Area 4 projects.
Rui Mate had to wade through four sets of contracts to discover the changing rules. Here we present numbers only for Coral Sul; the other three gas projects have differences discussed below. The start is that the investing companies can recoup their costs. Exploration and developments costs for Coral Sul are $13.2 billion. Companies take 75% of the value of produced gas to pay off the exploration and development costs, which takes until 2032 for Coral Sul. Next they take $638 mn per year for operating costs. What is left is profit, which is not large until the costs are paid off in 2032. During the cost-recovery period, the state takes a 15% profit tax, estimated by Mate at $120 mn per year during 2027-2032; the profit tax rises to 25% in 2035.
During the early period, there is no corporate income tax, but from 2034 corporate income tax is 32%.
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Finally there is the issue of the state company ENH which has a 15% share of the Coral Sul consortium, so that the state owns a small piece of the gas. ENH does not have the money pay its 15% share of exploration and development costs, which is $1.3 billion. This is treated as a cost "carried" by the other investors so that it is not counted as part of Mozambique's national debt. But ENH pays 6% interest and all of its share of profits goes to repaying this debt, which is fully repaid in 2033.
In the 2033-5 period ENH suddenly has profits and capital costs have been paid. ENH profits and gas and corporate income tax jump, resulting in a $300 mn per year jump in state income, shown in the chart above. That is followed by falling production so income drops each year after the peak.
Contracts of the two onshore project
Area 4 Rovuma LNG (RLNG, Exxon) and Area 1 Mozambique LNG (MLNG, TotalEnergies) have shallow wells and onshore processing on the Afungi peninsula, so the contracts have a similar structure but the numbers are different. Thus Coral Sul and Exxon takes 75% of initial production to pay capital costs, but TotalEnergies takes only 65% (which means more gas can be taxed initially but it takes longer to pay off the debt). Corporate income tax payments only start once capital costs have been paid. ENH owns 15% of the Area 4 projects but only 10% of Area 1. And during the cost recovery period the state takes a 15% profit tax of the area 4 but 10% of area 1, plus the 2% royalty on all gas.
This can only be guess, but this suggests that income in the first plateau period for the two onshore projects is perhaps $400 to $500 mn per project per year. So $1 billion per year income for the state from all four Cabo Delgado gas projects could be possible from the early to mid 2030s. Although $1 billion seems like a lot of money, that $1 billion would be only10% of government revenue in the mid-2030s.
Dreams of Eldorado are postponed to the 2040s. And there are too many unknowns including climate change, gas prices and the war to predict if the dreams will be realised. But Mate is surely right that more investments now in family commercial farming and resource processing would have more long term impact than the gas.
Two unknowns - gas price and war costs
Rui Mate's projections range between $1 billion and $11 billion total state income 2022 through 2048 because they are highly dependent on gas price. Gas companies assume high gas prices which is why they predict bonanzas. For most of the past two decades LNG prices have been between $10 and $20 perMMBtu (Million Metric British Thermal Units). Mate's base case and the graph assume $12/MMBtu, giving the $4 billion profit. But if gas consumption was cut enough to reach global heating targets of just 1.5ºC increase, there would be an oversupply and prices would fall. Also the current push to open new gas fields could cause a glut on the market. A market surplus would cause the price to drop to $8/MMBtu and Mozambique's income falls to just over $1 billion. But if gas prices go up to $16/MMBtu, as the gas companies hope, Mozambique's government would earn $11 billion.
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The other unknown is TotalEnergies claim that the cost of the shut down due to the war was $4.5 billion, and its demand that this be included in recoverable costs. This is now subject to a government audit. This would raise the total Area 1 debt from $20 billion to $24.5 billion. This would be recovered over a longer period, and move the income peak to 2039 or 2040 for Area 1.
