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Sector analysis Mozambique LNG: Boom or gloom?
From possessing no tangible hydrocarbon resources to speak of to the potential of becoming the world’s next energy superpower, gas-rich Mozambique presents an opportunity for multi-billion dollar investment, with its staggering more than 200 trillion cubic feet (tcf) (and counting) of natural gas reserves. In what seemed like the blink of an eye, the penurious country plunged into the limelight and became the talk of the town among energy executives as Anadarko Petroleum and ENI struck supergiant resources in deepwater Area 1 and Area 4 over a decade ago. Situated in the northernmost province, Mozambique’s cyclone-prone Cabo Delgado will be the location for one of Africa’s largest liquefied natural gas (LNG) projects, Mozambique LNG. The Mozambique LNG project comprises the construction of the nation’s first onshore LNG facility with two trains each initially with a capacity of 6.44 mtpa for a total nameplate capacity of 12.88 mtpa, built alongside two LNG storage tanks, with a capacity of 180,000 cubic metres each, condensate storage, a multi-berth marine jetty and associated utilities and infrastructures. Feed gas will be fed by the offshore Golfinho-Atum fields which are being developed independently from the Prosperidade Complex in offshore Area 1. Spearheaded by Total after having bought Anadarko’s 26.5% operated interest in the project for US$3.9bn in September 2019, the project is being jointly developed alongside other energy players from around the globe including ENH (15%), Mitsui & Co (20%), ONGC Videsh Limited (10%), Beas Rovuma Energy Mozambique Limited (10%), Bharat PetroResources (10%) and PTTEP (8.5%). Having achieved its Final Investment Decision (FID) in June 2019, the US$20bn LNG export facility was the largest single LNG project sanctioned in Africa. The deepwater Area 1 bears an estimated 75 tcf of recoverable natural resources, of which 18 tcf will be developed alongside the first two trains. The project has already sold 11.18 mtpa, almost 90% of the production through long-term contracts with key LNG importers in Asia and in Europe. Additionally, the feedstock will also be supplied domestically for in-country consumption to help fuel future economic activities, which is projected to generate more than US$40bn in revenue for the government over its lifespan. There has also been a plan to expand the facility with two additional trains, taking the total nameplate capacity up to 43 mtpa.
Muham mad Ari f Syafiq Ahmad Sabri
Despite the disruptive impact that COVID-19 has had on driving down energy demand and knocking prices to all-time lows, forcing decision-makers to curtail their CAPEXs, the project continues to progress at a good pace. In July 2020, the French supermajor inked a US$14.9bn senior debt financing agreement with various parties including eight export credit agencies (ECAs), 19 commercial bank facilities, and a US$400m loan from the African Development Bank, sealing the confidence placed by financial institutions on the future of LNG in Mozambique as it marks Africa’s single largest foreign direct investment to date. UK Export Finance (UKEF), after carrying out due diligence on all relevant aspects and considering the project’s ESHIA, is one of the ECAs providing financial support for the project which in turn benefits the UK supply chain. Total, in collaboration with Mozambique’s government, consistent with the local content law, aims to maximise local participation. As of June 2020, 300 Mozambican companies, out of which 160 are Mozambican owned, have been involved, with more than 1,300 Mozambicans contributing to the total workforce. US$2.5bn, which represents one third of the project’s onshore contracts, has been allocated for Mozambican-owned or registered companies. While others are pumping the breaks with their projects due to market volatility, bringing the LNG facility online in 2024 is going to be an uphill climb. The development has coincided with a series of increasingly brazen attacks by Islamist insurgents which led to the deal struck to form a joint task force to protect the supermajor’s project operations and personnel. COVID-19 further worsened the supply glut by reducing demand and prices, affecting projected revenues as well as hindering the development progress when the site became the centre of the country’s outbreak. However, having sent many expatriates home, leaving a huge gap in the market, there is an opportunity to invest in local skills and maximise participation. Given its geographical advantages, Mozambique is optimally positioned to supply the Atlantic and Asia, especially China, where fuel-switching policy is being actively pursued. Having an offtake agreement with the top energy-driven countries like Japan, India and Taiwan makes the project lucrative as forecasts predict growths in demand from these Asian buyers, provided that the market ‘recovers’. It is exciting to see how these ‘bridging fuels’ will play a role and stay competitive with the rapidly falling cost of renewables as well as the emergence of the new kids on the block, namely blue and green hydrogen. Muhammad Arif Syafiq Ahmad Sabri Research Analyst, UK, Europe, RCIS & SSA muhdarifsyafiq@the-eic.com
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