9 June 2017

Mozambique: Final Investment Decision Taken On Rovuma LNG Project

Mozambique is now "undoubtedly on the natural gas trade route", declared President Filipe Nyusi on 1 June, at the ceremony where the partners in the Rovuma Basin Area Four consortium made their Final Investment Decision for the project to set up a Floating Liquefied Natural Gas (FLNG) unit, above the Coral South gas field.

Mozambique is now "undoubtedly on the natural gas trade route", declared President Filipe Nyusi on 1 June, at the ceremony where the partners in the Rovuma Basin Area Four consortium made their Final Investment Decision for the project to set up a Floating Liquefied Natural Gas (FLNG) unit, above the Coral South gas field.

Area Four is 50 kilometres off the coast of the northern province of Cabo Delgado, at a depth of between 1,500 and 2,600 metres. During exploration 15 wells were drilled, and the known reserves in Area Four are over 85 trillion cubic feet of gas.

Coral South is a "structuring project" for our economy, President Nyusi said, which "will have a great impact on our lives". The signing of the agreement on the FLNG project marked an end to the moments of "hesitation, uncertainty and nervousness" that had preceded it.

Over the past three years, he added, the behaviour of the energy market had been adverse, with the slowdown in the economies of the developed world, and a fall in energy prices, including the price of gas, which was why it had been impossible to comply with the initial timetable for extracting and exporting Rovuma Basin gas.

The initial forecast was that the gas would be flowing by 2019. But under the current agreement, the Area Four consortium has five years to complete the project. The FLNG vessel will have the capacity to produce 3.4 million tonnes of liquefied gas a year.

All the gas from the FLNG unit will be exported under an agreement reached with British Petroleum with none being set aside for use on the domestic market. President Nyusi said that was because the government had agreed "to renounce immediate economic advantages to guarantee the viability and sustainability of the business".

The FLNG unit is just the start, and Coral South is only one of several gas fields discovered in the Rovuma Basin. The next step will be to process gas from the Mamba field, also in Area Four, in an onshore facility to be built on the Afungi Peninsula in Palma district. The operator of this facility is expected to be the American petroleum giant, ExxonMobil.

The Final Investment Decision, the President added, would mean a change in the international perception of Mozambique, and the revenues that would be forthcoming would reduce the deficit on the country's public accounts.

The Italian energy company ENI is the operator of Area Four, and its Chief Executive Officer, Claudio Descalzi, declared that the project is "very robust", with 15 banks and other financing agencies committed to lending around US$6 billion of the US$8 billion that the project requires. These figures do not include the US$2.8 billion already invested in Area Four.

"At this moment of extreme financial difficulty across the world we were able to convince 15 banks, three of them national and 12 international, to come to Mozambique with US$6 billion", Descalzi declared. "Mozambique has been tested and it has passed the test".

The US$6 billion was just the start - when other Area Four gas projects came on stream, the investment could rise to "30, 40, 50 billion dollars", he said.

"We cannot miss this opportunity, we cannot fail", said Descalzi. "The eyes of the world will be on Mozambique. We have to achieve".

The Area Four consortium is led by ENI-East Africa, with a 70 per cent holding. That stake is divided into 20 per cent for the Chinese company CNPC, and 50 per cent for ENI itself, which has signed an agreement to sell half of this to ExxonMobil. The other partners, each with ten per cent, are Kogas of South Korea, GALP Energia of Portugal, and Mozambique's own National Hydrocarbon Company (ENH). The CEOs of all these companies signed the Final Investment Decision.

Engineering contracts were also signed, to build the FLNG vessel, to drill six offshore wells, and to link them to the vessel by a network of cables, known as umbilicals, risers and flowlines. The consortium that will build the FLNG vessel is headed by the French company Technip/FMC and includes the Korean company Samsung, and JGC of Japan. The contractors for the subsea area include General Electric, of the United States, and Saipem of Italy, which is a subsidiary of ENI.

The chairperson of ENH, Omar Mitha, told AIM he is confident that ENH could raise its share of the money (US$800 million). He also believed that the five-year deadline for the Coral South FLNG is perfectly feasible, and that production could even begin before then.

Although the FLNG technology is relatively new, Mitha said there is "a high degree of confidence in it" - otherwise, BP would not have agreed to buy all the Coral South gas.

To date, only one FLNG vessel is in production, in Malaysia, and a second is being built in Australia.


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