Contents

Sector analysis

Mozambique LNG:

Boom or gloom?

Muhammad Arif Syafiq Ahmad Sabri

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

Research Analyst, UK, Europe, RCIS & SSA muhdarifsyafiq@the-eic.com

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