For more than a decade, liquefied natural gas from the Rovuma Basin has been presented as the catalyst for structural transformation of the Mozambican economy. Governments, international investors, and multilateral institutions have sustained the narrative that the vast offshore reserves of Cabo Delgado will drive economic growth, strengthen fiscal stability, and improve the trade balance. Yet, after years of force majeure-related suspension and a recent partial resumption of activity, a critical question demands attention: will the economic impact of gas actually match expectations? This question is all the more pressing in a context of persistent fiscal deficits, modest growth, pressure on international reserves, and rising domestic public debt.
The central problem does not lie in the quantity of gas available, but in the timing of its effective entry into the global market. Recent projections indicate that, from 2027 onwards, the international LNG market may enter a phase of oversupply, driven by the expansion of export capacity in the United States and Qatar. Estimates suggest that by 2030, global supply could reach levels exceeding demand, creating sustained downward pressure on prices. In this scenario, Mozambique — with the bulk of megaproject production scheduled for 2028 and beyond — risks entering the market precisely when international prices are declining, materially constraining a significant portion of the expected fiscal benefits.
The combination of delayed project start-ups and a global oversupply environment poses substantial commercial challenges. On one hand, the window of opportunity is narrowing, as the country will be entering a saturated market. On the other, revenue pressure will intensify. While the TotalEnergies and ExxonMobil consortia benefit from long-term contracts indexed to Brent crude, which provides some insulation against immediate price volatility, a decline in spot gas prices remains a credible threat. It would translate into compressed margins and lower tax collection, even accounting for the country’s high-quality reserves and relatively competitive extraction costs.
Limitations imposed by project structure
The challenge becomes more apparent when the fiscal architecture of the projects is examined in detail. Studies indicate that annual tax revenues could remain modest during the initial production phase, owing to the cost-recovery mechanisms embedded in the contractual arrangements. In practice, this means the Mozambican state may face a multi-year wait before it fully benefits from gas revenues.
“The greatest risk is not that gas fails as a resource, but that the country places its expectations in a solution that may arrive late, generate lower-than-projected revenues, and find a financially weakened state.”
Consequently, expectations of a rapid and substantial inflow of public resources are constrained. More concerning still is the risk that such revenues, when they do materialise, are absorbed by accumulated financial obligations. In a scenario of fiscal deterioration — as flagged by international institutions — future gas revenues could effectively serve to service past debts rather than being channelled into strategic investment in education, healthcare, infrastructure, or industrialisation.
LNG projects face economic headwinds in a shifting global market
This context points to a paradox frequently observed in resource-rich economies: the coexistence of abundant natural resources and persistent levels of poverty. International experience demonstrates that the mere existence of geological wealth does not guarantee economic development. Converting that wealth into tangible benefits depends on institutional capacity, quality of public financial management, economic diversification, and the calibre of policies adopted.
The domestic dimension as a driver of growth
Viewed from a different angle, the greatest economic potential of gas may lie in domestic utilisation rather than export alone. Mozambique faces structural challenges related to foreign exchange availability, the importation of liquid fuels, and exchange rate stability.
In this context, promoting the domestic use of natural gas could generate immediate and sustainable economic benefits. The gradual substitution of traditional fuels with gas in the transport and industrial sectors would reduce the import bill, preserve international reserves, and reduce exposure to external shocks. However, realising this strategy requires significant investment in infrastructure — distribution networks, storage facilities, and transport systems. Their absence could materially limit the domestic economic gains from gas.
Pemba reinforces its logistical importance for the development of the LNG industry
Ultimately, the real question is not the scale of the reserves, but Mozambique’s capacity to convert that potential wealth into effective development. The greatest risk is not that gas fails as a resource, but that the country places its expectations in a solution that may arrive late, generate revenues below projections, and encounter a state already financially weakened. Transforming that reality will require pragmatism, fiscal discipline, and a strategy that prioritises long-term economic sustainability over short-term expectations.
Source: Diário Económico
Original article: https://www.diarioeconomico.co.mz/?p=527989
