Mozambique LNG Projects Set to “Attract Major Commercial Interest” – EIU

Mozambique´s liquefied natural gas (LNG) sector is set to “attract major commercial interest”, after the US’s Export-Import (EXIM) Bank reinforced its financing to ongoing projects to include offshore activities, according to the Economist Intelligence Unit (EIU).

 

In its latest report on Mozambique, the EIU highlights the change by EXIM, in May, of the terms of the loan that it is providing to LNG projects in Mozambique´s Cabo Delgado province, to support US-based companies and to include offshore activities.

 

“We expect Mozambique’s LNG sector to continue to attract major commercial interest, with output set to begin in the mid-2020s. Our forecast remains unchanged”, the report states.

 

EXIM bank first approved a loan for the LNG project in September 2019. Under the revised deal, USD 1.8bn is earmarked to go to offshore LNG development work. The scale of the loan is USD 4.7bn, instead of the USD 5bn previously estimated.

 

Accoding to the EIU, US-based companies have been awarded contracts worth billions of dollars to help to build the facility. “The availability of private financing for the project had been limited owing to the size and complexity of the project combined with high levels of risk in investing in Mozambique”, it adds. Accordingly, financing from the EXIM Bank allows US-based companies to participate in the project.

 

Anadarko Petroleum Corporation (a US-based oil major) initially led the Area 1 LNG project in Mozambique, with the final investment decision (FID) reached by Anadarko in June 2019, allowing some investment to come in as facilities are developed.

 

In October 2019 the Area 1 project was sold on (as part of Anadarko’s withdrawal from Africa) to a French oil major, Total.

 

“Following the outbreak of the coronavirus (Covid-19) at the site, work on the Area 1 project ground to a halt in mid-April. Despite this, (and, more importantly, the collapse of oil prices and sharp capital expenditure cuts across the industry) the awarding of contracts has continued”, states the report.

 

Despite the absence of a date for when construction will resume, Total has not confirmed any change to the scheduled start of production, which is set for 2024, with 12.9m tonnes of LNG output. The company is, in the meantime, continuing off-site work, including engineering, logistics and forward planning.

 

On May 26th Mozambique’s Council of Ministers approved a decree to amend the financing structure of the Area 1 liquefied natural gas (LNG) project.

 

Total, holds a 26.5% stake in the Area 1 project, and is the lead operator, with other investment partners including Mitsui (Japan), PTT (Thailand), ONGC and Bharat Petroleum (both of India) and Mozambique’s national petroleum company, ENH.

 

“A major objective of this decree is to include Total in the shareholder structure, replacing Anadarko”, the EIU says.

 

According to the mineral resources and energy minister, Ernesto Tonela, the amendments also aim to improve flexibility on the future development of related projects. Under the terms of the Final Investment Decision (FID), which was approved in June 2019, concessionaires could only develop subsequent steps from 2026. However, the entry of Total changes the scenario both in terms of the projected timeline (with Total now able to start work before 2026) and shareholder revenue. The government hopes that the financial restructuring will also noticeably reduce costs during the construction phase, and also during operation.

 

Total has not confirmed any change to the scheduled start of production, which is set for 2024, with 12.9m tonnes of LNG output. The company is in the meantime continuing off-site preparations, including engineering, logistics and forward planning.

 

“There have been reports of delays to some equipment procurement, but most work can continue as scheduled, and Mr Tonela has stated that disinfection of the fields is under way in order to allow work on the site”, the EIU says.

 

Samsung Heavy Industry is moving ahead in South Korea with the construction of a floating platform (FLNG) for the Area 4 joint-venture, led by Eni and which include´s China National Oil and Gas Exploration and Development Company, a subsidiary of CNPC.

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