Analysis of SCM Challenges in Mozambique LNG Projects

This report presents a detailed analysis of the supply chain management (SCM) challenges encountered in Liquefied Natural Gas (LNG) projects within Mozambique. The study, based on primary research including interviews with stakeholders and SCM managers, identifies key issues such as infrastructure deficiencies, communication problems, and financial/liquidity constraints. The report explores the absence of sufficient government support, the lack of involvement in trade cartels and unions, and the implications of these factors on project development and economic growth. It also examines the impact of volatile oil prices, the importance of efficient logistics, and the need for strategic planning to overcome these challenges. The findings highlight the negative impact of these issues on LNG projects, emphasizing the need for improved infrastructure, government backing, and strategic alliances to foster economic growth and enhance the competitiveness of LNG projects in Mozambique. The report concludes with recommendations for addressing these challenges and promoting sustainable development in the LNG sector.

Dissertation

Contents
Chapter 4: Results and Discussion..................................................................................................1
4.1: The major issues with relation to SCM in LNG projects in Mozambique...........................1
4.2: Absence of government support for LNG projects in Mozambique....................................3
4.3: Part of trade cartels for LNG projects..................................................................................5
4.4: A member of trade unions or groups for oil and gas industry..............................................5
4.5: Safety policies adopted while transporting or distribution of oil and gas............................6
4.6: Infrastructure development and support from government is benefit for the business........9
4.7: Anticipated that there is an increase in demand for LNG in Mozambique........................11
4.8: Existing infrastructure sufficient for LNG projects in the future.......................................12
4.9 Limitations...........................................................................................................................13
4.10 EVALUATION OF THE STUDY....................................................................................14
Chapter 5: Conclusions and Recommendations............................................................................16
Bibliography..................................................................................................................................19
Appendix 1.....................................................................................................................................21

Chapter 4: Results and Discussion
The supply chain forms a very important element in case of oil and gas firms as it
provides the firm with a viable competitive advantage. In case of the supply chain being further
strengthened, it helps to form better sales and this enables the inclusion of retail outlets, where in
another level has been added into the distribution and supply chain is of great benefit. Primary
Research that was conducted along with several stakeholders in oil and gas industry in
Mozambique, reveals that there are several or different type of issues that are faced by people.
However, there are both positive and negative impact on social and economic conditions.
It is essential that the government works towards building better solutions for oil and gas
supply in Mozambique to create a stronger impact on economic growth. An in depth research
was carried out using a questionnaire and the following results were obtained. Interview were
conducted from stakeholders as they have proper knowledge about the research topic selected.
The following are the results of the discussion and interview conducted among
stakeholders of LNG projects and managers in LNG projects. It forms an important element of
providing an idea about the present conditions in LNG projects as well as the supply chain
involved. This will enable to come up with an appropriate outcome for the research so that the
issues faced can be solved.
4.1: The major issues with relation to SCM in LNG projects in Mozambique
In accordance with the discussion make with SCM managers and stakeholders involved
in LNG projects in Mozambique indicates, there are different type of issues relating to supply
chain which require immediate attention. It indicates that infrastructure is just one of the many
issues that they are facing in terms of managing the SCM in LNG projects. It is important to
develop an understanding of the practical issues faced by the system which include lack of liquid
cash and problems in communicating during distribution of LNG. It is essential to resolve three
main issue while managing LNG projects which include the following:
1. Infrastructure issues
2. Communication issues
3. Financial and liquidity issues
These can be determined to be the main cause due to which very few LNG projects being
carried out in Mozambique as well as the whole of Africa, in spite of there being abundance of
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oil resources. It is important that these issues be resolved so that there is better economic growth
that can be achieved.
In accordance with the above given figure, it can be stated that the rate of project related
with LNG are increasing. This has a positive impact over the employment. When the project rate
increases, then the number of people who are involved in the sale are also increasing, more and
more employment opportunities are attained by people.
As the number of transactions that has taken place is huge and several stores have to be
managed, where in combined inventory order decisions have to be taken, either the whole system
can be integrated or autonomy can be granted to each of the units.
It requires to have proper handling of goods, ensuring that the choice of transportation,
which in case of locomotives might be air or sea, is chosen to be able to gain cost effectiveness.
As these investments or overheads are huge and form a portion of the total costs as well as
impact the pricing of the final product, it becomes very important to choose the most cost
effective and safe method of transporting the goods in order to facilitate a competitive advantage.
This can help the firm be able to gain market leadership based on its competitive pricing and also
form a competitively forwards position.
It is also important to create strategy for effective importing and thus form a strategic
advantage as well as competency. In this way, it is possible for a mining firm to procure
machinery and locomotives of superior quality as well as effective prices form the Asia Pacific
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regions. The distance of the country form where it has to be called for, their foreign currency and
exchange valuations, political conditions and laws regarding export have to be considered before
deciding form where the locomotives should be procured. In accordance with the objectives, it
can be stated that are high negative impact on LNG projects.
The importance of logistics and supply chain cannot be denied in the present world of
extreme competition. In case of modern businesses, it is very common for them to carry out
international transactions and globalization has made this a very important competitive
advantage for a business. The present day businesses carry out international transactions as a part
of their strategies to rationalize costs. It is important for them to avail raw material, machinery
and even labour and capital from the most cost effective sources, even if they are located in other
countries and other continents. Only then it would benefit the economy of Mozambique in an
effective manner. This can help build better levels of development in Mozambique.
This way, it can be stated that, business that is operated by the firm to visits its suppliers
and forms a strategic plan which can help them obtain better levels of control and competencies.
Efficient supply chain managers would ensure effective planning by accommodating for all
possibilities and anticipated contingencies. It might or might not be possible for accommodating
too much of time as a margin for “just-in-case” contingencies as the pressure on the supply chain
is generally high. It is recommended that the firm uses this effectively. It is important for a
business to be able to create resourcefulness and manage its supply chain in an organization or an
industry. Only then it enables building of better economic functioning and LNG industry growth
in the long term.
4.2: Absence of government support for LNG projects in Mozambique
The managers and stakeholders that were interviewed mentioned that there is lack of
thorough support from the government for LNG projects. Moreover, there is high competition
among LNG companies at a global level. Lack of government support leads to further difficulty
for firms managing LNG projects as the infrastructure and technology available is not adequate.
Pricing in the oil segment is extremely volatile as it is based on several factors. Oil being an
internationally traded commodity, its prices is constantly changing. This has a great impact on
the global economy. It is very important to ensure that investors hedge themselves against this
volatility in order to be able to gain from their investments in the oil sector. In this way oil
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producers and major oil consumers seek to achieve safety and protection as well as risk
mitigation for their investments.
Coordinating and managing the complete process in a profitable manner is very difficult
and challenging a task. It requires the effective management of the process and usage of several
cost controls in order to sustain the profitability of the supply chain and make it an important as
well as sustainable element of the value chain. Competitive advantage refers to the advantage
achieved by a firm due to its resources or competencies over and above its competitors and other
players in the industry. Competitive advantage is usually a sustainable advantage that can help
provide a firm with an upper hand in terms of performance as well as satisfying customers in a
profitable manner. It might be in the form of an established brand reputation or also in the form
of capital and human resource that a firm possesses and its competitors do not.
It is quite evident that there is lack of support from the government as the oil and gas
industry expands. It becomes important to build a long term plan which can help facilitate
sufficient growth among various LNG firms and help accelerate economic growth. The cost
factor is an extremely important element that has to be considered. The supply chain is made up
of several intermediaries, which includes manufacturers, wholesalers, distributors and retailers,
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from where it reaches the final customer either through a purchase at a store or delivery at their
doorstep. In case of LNG products being transported from one place to another, it is important to
be able to develop a strong level of understanding about how the products are to be placed and
managed. It is important to make sure that appropriate steps are taken so that they are able to
understand the main problems that are faced by the country. In simple words, it can be started
that majority of the people think that the support from the side of government is low. There are
many improvements or developments that can be made with the help of which proper support
can be made.
4.3: Part of trade cartels for LNG projects
Majority of the candidates or respondents stated that there were not the part of trade
cartels for LNG projects as there is no strong cartel supported by the government or any private
body. This results in weak bargaining power, lack of competency based growth and lack of
opportunities due to managing small economies of scale. Several hedging strategies are used in
oil trading which helps traders to be able to trade in oil in international markets. (Blinder, A. S.
and J. B. Rudd, 2012). This is not a positive element as it indicates that there is no unity and
collectivity which results in loss of competency building. It is important to function in terms of
growth orientation and fulfillment of long term or strategic goals which can help a business in oil
and gas industry develop. It is also important to focus on creating a trade cartel that can represent
the problems faced in LNG projects to the government.
4.4: A member of trade unions or groups for oil and gas industry
Among the total respondents, About 75% of the oil and gas firms are not a part of trade
unions or groups for oil and gas industry. Lack of cohesion and unity in this industry is causing
LNG projects being carried out at very low economies of scale. OPEC (Organization of
Petroleum Exporting Countries) is an extremely popular an organization that has been formed
with the objective of management and administration of oil production in the Petroleum
exporting countries in the United Arab Emirates. It is an inter-governmental arrangement
between 12 different oil exporting countries which helps them command a higher value as they
are well organized and are able to safeguard their interests. It helps these 12 developing nations
to form a union where in they are able to command and dictate terms and conditions in terms of
the products as well as the price of these products (Blinder, A. S. and J. B. Rudd¸ 2012). This
makes OPEC (Organization of Petroleum Exporting Countries) an extremely important element
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or factors that impact and is crucial for global economies. This truly indicates that forming trade
groups can help strengthen the level of activities carried out in this industry in Mozambique.
They are able to influence the global economies as oil and petroleum are natural resources of
great importance and value all around the world. This has also made it an extremely important
commodity in the global financial markets. The OPEC (Organization of Petroleum Exporting
Countries) plays an extremely important role in stabilization of prices in the international oil
markets. A similar model should be adopted in Mozambique to ensure growth in oil and gas
industry as well as SCM in LNG projects in Mozambique (Hamilton, J. D. 2012). There are
different type of issues that are faced by workers working. There are many policies or procedures
that has to be followed by the firm and it required the workers to followed. There are conditions
identified in which employees are not able to accept the changes. In this context, trade union is
an helpful aspect that enable to make negotiate with management team so that they are able to
understand the requirements in effective manner. Employees are able to share their issues or
problems that are faced by them and when appropriate solution is taken, then it is favorable
enough to make sure that they use their full efficiency.
A simple database would help only maintain information. Automatic replenishment is not
feasible as the business is on individual project basis and not on continuous basis. A strong
logistics supportive information management system in the construction business would require
facilitating collaboration and networks to exist. It should enable a single information entry to
cause an update in the complete information system. It should also have access controls and
safety controls in place. A system of this kind would enable placing of orders and efficient
communication along with tracking of materials using GPRS. This system helps explore the
Web-based technology to improve the managing of reactive maintenance projects. It has
extensive architecture and functional requirements. Web enabled project management helps
increase the communication flow and also helps share information and knowledge among
various users and associates including suppliers and transporters. Firewalls and security systems
enable limit access through limited authorization. Web based management of logistics is
increasingly gaining popularity in countries like UK.
4.5: Safety policies adopted while transporting or distribution of oil and gas
Hedging is done on the basis of there being a relative correlation and relationship
between the pricing of oil and petrol along with the change or fluctuation in the supply and
6

demand. All of this results in trading and hedging of the spot positions along with changes in
long and short positions of the traders, thus forming a complete speculation and investment
commodity for the financial markets (Lawson, T., 2015). Coordinating and managing the
complete process in a profitable manner is very difficult and challenging a task. It requires the
effective management of the process and usage of several cost controls in order to sustain the
profitability of the supply chain and make it an important as well as sustainable element of the
value chain and based on these elements, it is important that the firm selects its suppliers. It is
important for them to ensure that their suppliers have an access to the required modes of
transport so that the dealings can be smoothly carried out. Managing the supply chain is not an
easy task. It involves the co-ordination and management of several processes and sub processes.
It is essential for supply chain managers to consider several aspects of the supply chain and the
activities involved in order to set up an effective supply chain in their firms. It is important that
there be long term sustainability obtained in the supply chain processes so that there are better
levels of domain establishment and strategic development. This can help build long term
improvement and growth in economic development as well.
International logistics helps obtain benefit of cheaper or cost effective procurement and
also take benefit of differences in the foreign exchange rates. Moreover, the required material
might not be available locally and there may be some countries or places that specialize in the
production of goods like locomotives. So, international logistics make it possible to procure the
required equipment form such places at economic rates. All of this makes international logistics
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extremely important and also crucial for a firm. This cannot be achieved without growth
orientation and long term planning.
These form appropriate balance between demand and supply along with which it is also
essential that there be a reflexive and reactive as well as proactive supply chain which help the
firm or the manufacturer manage the procurement process in an appropriate manner. Another
important aspect is efficiency. The supplier has to be able to provide cost effectiveness which is
possible only in case of economies of scale. So the supplier size needs to be substantial so that
the firm can benefit out of partnering with them in the long term as well. Logistics and Supply
Chain Management is the process of the management of the network of a business that is
interconnected to each other. The SCM is involved in the provision for product and services that
are required by the customers.
Supply Chain Management according to Tom Mc Guffog is "Maximizing added value
and reducing total cost across the entire trading process through focusing on speed and certainty
of response to the market." Supply chain management is one of the important areas which
require strategic planning in a business enterprise. Planning and decision making are required
right from the production of goods till the goods reach the ultimate consumers in the most cost
effective and timely manner.
The integration of supply chain is not an easy job; the company simultaneously has to respond to
a number of issues such as:
 The high cost involved in supply chain activities, which is estimated to be between 5-
20% for the firm
 The level of inventories
 Lag in customer service such as lead time, availability, reliability, documentation and
responsiveness
 Inter – departmental conflicts
 Goal -restructuring
The company follows a structured approach in developing a supply chain strategy:
Phase 1 Identify customer needs
Phase II
8
Competitive
environment
evaluation

Determine Options
Phase III Organize options into an
Integrated supply chain Strategy
The company evaluates operations and develops a supply chain strategy so as to
determine those prospective areas where the company must be competitive or have gained
success in the past. Thus market evaluation is a must and hold utmost importance; it is ranked as
the first phase of supply chain integration.
Initially, before having installed its logistics information system it faced several
operational issues. But once it installed its logistics information system, its operations became
much more effective. It was easier for them to communicate and coordinate. It has successfully
bagged a number of reputable projects. The process of its implementation of information system
reveals the below stated process details. Various factors like what should be managed and what
is the purpose or objective in managing information using technology and what are the current
problems in working without technology has to be assessed. The outcome was that the current
system is very expensive and time consuming. The current system is not very efficient as there
are loopholes in coordination. The required information was not easily accessible at the required
time. These drawbacks of a manual and disorganized information management can be overcome
by setting up a Management Information System in an oil and gas firm.
4.6: Infrastructure development and support from government is benefit for the business
The logistics of an organization is defined as the designing, execution, planning and the
monitoring of the activities related to supply chain management and it does form an extremely
important function that supports the operations of the organization. The main objective of the
supply chain management is to help a firm obtain better levels of growth and efficiency in each
of its operations. It helps leverage the worldwide logistics, and synchronize the supply with the
demands and also to measure the performance globally.
Supply chain and logistics are extremely important to an organization as it is an element
of a distribution network and this helps obtain better levels of efficiency. They help in the
9
Supply Chain
diagnostic
Review
Supply Chain Strategy
Development

process of ensuring appropriate levels of place utility which helps ensure increased economic
value as well. Logistics management is of great importance to all organizations including a
distribution firm and a LNG firm. Location and capacity are important aspects for a growing
business. Along with this proximity to ports and suppliers can prove to be a strategic
competitive advantage to a firm.
There is a significant relationship between the supply capacity and prices of oil and this is
relevant to the activities of OPEC which happen on a very regular basis, thus impacting the
international oil prices (Hamilton, J. D, 2008). It is extremely important for investors to hedge
themselves against the volatile changes in the prices of oil. Investors can do so by holding
counter positions in investments and thus creating a complete balance in short and long positions
or commodity options and this can prove beneficial in long term investments as well as short
term speculations (Taylor, 1983).
Support from government is being sought with regard to pricing, insurance and hedging.
The main benefits of using hedging in oil markets is that it helps in ensuring that investors are
able to mitigate risk and take advantage of investment and hedging strategies. Investment is
related to risk and return (Blinder, A. S. and J. B. Rudd, 2008). In case of investing in OPEC
countries, it is essential for an investor to research and find the various factors relating to the
UAE markets as well as oil price trends to be studied in order to analyze the investment
opportunities in oil and petroleum and this makes it extremely important for them to ensure an
understanding of price ranges and the target range for oil (Lawson, T. 2009). This requires the
analysis of various aspects like risk associated in these markets, chances or probabilities of
profits, investing procedures and legal rules and regulations (Gately, D. and H. G. Huntington,
2002). In this way, it is possible to ensure that the risk in investing in the UAE market and in oil
is mitigated to the maximum possible extent (D’Arista, J. 2009). Apart from direct support for
infrastructure, it is quite important that the government is able to help form cartels, hedge in case
of exports and international trade and carry out business without any obstruction.
Information integration would automatically help increase operational efficiency as well
as succeed in the logistics function. Information integration would simplify and automate
information management. It would reduce the costs and optimize the effectiveness in information
management. In logistics as there are multiple vendors, duplication of information can be
avoided. Information and knowledge sharing will be enabled. Information integration will help in
10