After years of delay and deliberation, Mozambique’s liquefied natural gas (LNG) industry finally looks set to take off. Consortia led by Anadarko and Eni are investing tens of billions of US dollars in liquefaction, while the involvement of China National Oil and Gas Exploration and Development Corporation (CNODC) and China National Petroleum Company (CNPC) highlights the fact that China will be one of the main customers.
Tohoku Electric is the latest customer to sign up for LNG from the Anadarko-led Mozambique LNG project, moving the project one step closer to development. In mid-October, the Japanese company agreed to buy up to 280,000 tonnes a year over 15 years under a sales and purchase agreement. This is the second stage in the contracting process, following the heads of agreement (HOA) signed by Tohoku in December 2017.
The Tohoku agreement follows a much bigger deal with the UK’s Centrica and Japan’s Tokyo Gas that was announced in June. The two firms have agreed to take 2.6 million tons a year (Mt/year) between them and officials in Mozambique have suggested that the contract could stretch over 20 years. The two companies have opted for an innovative co-purchasing arrangement to give them some flexibility in the volumes that they source for their domestic markets.
Mitch Ingram, Anadarko executive vice president for international, deepwater & exploration, said: “This HOA represents a significant portion of the marketing off-take target we have set for FID [final investment decision]…our focus now is on converting these non-binding commitments into fully termed sale and purchase agreements.” The other sales contracts Mozambique LNG has agreed are with Thailand’s PTT, for 2.6 Mt/year, and EDF of France, for 1.2 Mt/year, both over 15 years.
Decision in 2019
Once sufficient production capacity from the project is tied up under outline agreements, the consortium can begin constructing the first two trains. These are industry name for complete LNG production lines. The government has already approved the development plan and the FID is expected to be taken in the first half of next year, allowing it to convert the existing non-binding deals into sales and purchase agreements by the end of 2019.
Anadarko has announced that it expects to conclude deals with other Asian customers next year. However, the US firm announced in mid-November that it is to invest another $200 million in preparing the LNG plant site even before it takes the FID.
The first two trains will have combined production capacity of 12.88 Mt/year and will be supplied with gas from the Golfinho and Atum fields on Offshore Area 1. About 75 trillion cubic feet of natural gas has already been discovered on the block. It is generally accepted that at least 9 Mt/year of production will have to be tied up in long term deals to reassure those providing project finance, allowing the FID to be taken.
The project will come on stream in 2023 at the earliest. Anadarko holds a 26.5% stake in the scheme, alongside partners Mitsui (20%), ONGC Videsh (16%), Empresa Nacional de Hidrocarbonetos (ENH) (15%), Bharat PetroResources (10%), PTT Exploration & Production (8.5%) and Oil India (4%). It is common practice in the LNG sector for big customers to buy equity shares in projects that will supply them. It has been reported in India that about a third of the $20 billion project finance will come from equity shares and the reminder via debt, making it the biggest ever project developed in Mozambique.
Anadarko has been criticised by Shell, which claims the US firm has delayed plans to supply gas to Shell’s proposed 38,000 b/d gas-to-liquids plant in Mozambique until the second phase of its LNG project is developed, probably in 2031. The Anglo-Dutch company plans to produce kerosene, diesel and naphtha on the project. The Anadarko consortium says that it can only supply 3.5 billion cubic feet to the domestic market in the first phase, with another 10.6 billion cubic feet in Phase 2.
CNODC involved in Eni project
An Eni-led consortium is to develop its LNG project on the same site as Anadarko at Afungi in the far north of Mozambique. The government of Mozambique took the very sensible step at an early stage of gas sector development in the country of asking the two projects to co-locate in order to save costs, share some infrastructure, including port facilities, and concentrate environmental permits on a single site.
The project consortium comprises Mozambique Rovuma Venture, with a 70% stake, plus Kogas, Galp Energia and Mozambique’s own Empresa Nacional de Hidrocarbonetos. Mozambique Rovuma Venture is owned by Eni (35.7%), ExxonMobil (35.7%) and China National Oil and Gas Exploration and Development Corporation (CNODC) (28.6%). The government is currently assessing the consortium’s development plan, which was submitted in July. Phase 1 is to have production capacity of 15.2 Mt/year.
The project is unusual in that the consortium expects to take the FID without concluding sales agreements with any external customers. The consortium announced in July that all production is expected to be sold to equity partners, which suggests that CNODC and Kogas are likely to sign contracts for huge volumes from the scheme. It will be fed with gas from the Mamba fields, on Area 4.
Eni is to oversee upstream operations on the project and ExxonMobil the construction and operation of the LNG plant. Phase 1 will include two trains, each with annual production capacity of 7.6 million tons. Talks with potential customers are already underway and the FID is due in mid-2019, with first LNG production in 2024.
Eni is also pushing ahead with the development of its separate LNG project, Coral Sul, which will deploy one of the first-ever floating LNG (FLNG) vessels. Most LNG projects comprise rigs that are anchored to the seabed, with gas piped to onshore plants where gas is liquefied to greatly reduce its volume, allowing it to be shipped around the world.
On FLNG projects, gas is piped to huge vessels that can liquefy the gas, store it and then offload it on to waiting tankers. The technology is employed either where gas fields lie in water that is too shallow to allow rigs to be tied to the sea floor, or where the gas reserves are too small or uncertain to enable the construction of expensive onshore LNG plants.
The FLNG vessel is currently under construction in South Korea and is due to sail to Mozambique in 2021. The government of Mozambique said in September that it expects gas production on the project to begin in June 2022, with the first LNG shipments in November 2022.
The $4.8 billion project is being supported by five export credit agencies, including China’s Export-Import Bank, while all output is to be sold to BP. The companies involved have pledged to maximise the training and employment of Mozambicans, including encouraging the emergence of a local supply chain. Yet given the highly specialised nature of much of the work, this will be easier said than done.
The offshore gas discoveries of the past decade have unsurprisingly generated a great deal of interest in Mozambique’s remaining unlicensed acreage. ExxonMobil signed exploration and production concession contracts (EPCCs) for three offshore blocks in October, some three years after it secured them in the 2015 licensing round, alongside partner Rosneft.
Maputo seems to have enabled the agreement by withdrawing the demand that oil companies list on the Mozambique stock exchange and making several other concessions. South Africa’s Sasol and Eni have also signed new EPCCs following the change in government policy, while Maputo has promised to more actively engage with potential bidders in the country’s planned sixth licensing round.
Global LNG markets
The development of LNG projects in Mozambique has been held up by price and demand uncertainty in the global LNG industry. Relatively few projects have been sanctioned over the past few years but could now proceed as a shortfall in global production is likely from the mid-2020s. Chinese demand for LNG has doubled over the past two years and surprisingly strong demand from China could also help to get some ventures, including those in Mozambique, over the line.
A raft of projects are awaiting FIDs over the next twelve months, including four in Russia and an incredible 14 in the United States, where the fracking boom has turned the country’s role in global gas markets on its head. A decade ago, LNG import projects were under development in the US but now companies are lining up to build export terminals, depressing global prices in the process. From a standing start, the US is expected to become the world’s second biggest LNG exporter next year.
Despite continued, steady growth in demand around the world, it seems unlikely that there will be room in the market for all of them in the medium term, but Mozambique is relatively well placed geographically to supply the biggest markets. All of the world’s biggest LNG consumers are located in Asia: Japan, South Korea and China. The three countries collectively bought 55% of the 391 billion cubic metres of LNG traded last year, with other Asian customers accounting for another 17%.
China’s role in the development of the Mozambican LNG sector will be key. The country is poised to become the world’s biggest LNG importer next year, according to the International Energy Agency’s (IEA) Gas 2018 annual report. The IEA forecasts that it will import 93 billion cubic metres of LNG by 2023, up from 51 billion cubic metres in 2017.