Eni launches major $8bn gas project in Mozambique

Once built, the floating LNG plant on Coral South, will have a capacity of about 3.4mn tonnes a year and will draw gas from the Rovuma Basin, where Eni made its first major Mozambique find in 2011

Image for illustration only.
Image for illustration only.
Rystad Energy has been tracking FID delays since the second half of 2014 to post-appraisal pre-sanctioned upstream projects.
Rystad Energy has been tracking FID delays since the second half of 2014 to post-appraisal pre-sanctioned upstream projects.

Italian energy giant Eni has signed an $8bn agreement last week to develop a gas field off the coast of Mozambique.

The country’s president Filipe Nyusi and Eni’s chief executive officer Claudio Descalzi attended the signing ceremony in the capital Maputo on June 1st, to formally approve the Coral South liquefied natural gas (LNG) project.

“Coral South, just Coral South because there’s also Coral North, is going to give overall to the community, the contribution to the government, as the government take, about $16bn,” Descalzi was quoted in a media report as saying at the event.

Once built, the floating LNG plant, will have a capacity of about 3.4mn tonnes a year and will draw gas from the Rovuma Basin where Eni made its first major Mozambique find in 2011.

Reacting to Eni's decision to sanction the world's first ultra-deepwater floating liquefied natural gas (FLNG) project in the form of Coral South, Alasdair Reid, research manager – Southern and East Africa, said: “Coral has avoided the reefs and is set to sail. Coral, the first ultra-deepwater FLNG project ever to be sanctioned, has beaten the larger onshore LNG projects in Mozambique to FID (final investment decision).”

The project draw gas from the Rovuma Basin and LNG exports are expected to start in 2022. The FLNG project is touted to be the first in Africa and only the third globally.

 

“Using a vessel liquefy gas offshore will allow the partners to realise cash flow from Mozambique earlier. The project will generate annual gross revenues of over $1.5bn per year (before tax) for 25 years, utilising 4.7tn cubic feet of gas over its lifetime. With FID out of the way, the project is now on track for first LNG production in 2022,” Reid said in an e-mailed statement to arabianoilandgas.com.

Eni said project finance would fund 60% of the cost of building the floating LNG facility, while the financing agreement has been subscribed by 15 major international banks and guaranteed by five export credit agencies.

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Analysts say the project is highly significant because, at a time when Mozambique going through a financial crisis, it demonstrates that there are investors that still have confidence in the country, and it also shows that its gas reserves are going to get developed, despite the low oil prices situation that have left several oil and gas assets in the world unattended.

“This is really good news for the government of Mozambique. It demonstrates that, despite ongoing credit issues, there is still enough belief in the investment climate for partners to raise finance and move projects forward. There is huge long-term potential for offshore gas in East Africa. The region will see a big hike in investment over the next decade as gas becomes an increasingly important part of the global energy mix,” Reid commented.

The Coral field is located within Area 4 and contains approximately 450bn cubic metres or 16tn cubic feet of gas. In October 2016, Eni and its Area 4 partners signed an agreement with BP for the sale of the entire volumes of LNG produced by the Coral South project for a period of over twenty years.

According to consultancy firm Rystad Energy, which has been tracking delayed FIDs in the global oil and gas industry since H2 2014, more delayed projects have been sanctioned to date in 2017 than during the entirety of 2016.

Rystad Energy’s data shows 17 of these delayed projects have since been launched, accounting for an estimated $78bn of development spending. Tengizchevroil’s 2016 Tengiz FGP/WPMP expansion in Kazakhstan accounts for about 40% of this spend. On May 29th, Husky Energy announced the sanction of its deepwater White Rose West project off Newfoundland.

This was 2017’s second double-drop week, after week 8 saw BP’s Mad Dog 2 (deepwater Gulf of Mexico) and Noble Energy’s Leviathan phase 1 (deepwater Israel) projects exit the FID delay tracker. In addition, projects in China, Iraq and Vietnam, as well as an oil sands scheme, finally reached FID during 2017.

“In spite of this apparent positive momentum, the FID delay list has continued to grow. Since we last published in January 2016, the list has grown in almost all themes, except oil sands, which is not surprising since oil sands projects are largely confined to one province in Canada, while all other themes have a global candidate pool. The ongoing results of the oil price pain is clear to see — still over 100 projects delayed, accounting for nearly 35bn barrels of oil equivalent and $300bn spend estimate at delay,” Readul Islam, research analyst at Rystad Energy, told arabianoilandgas.com about the delayed upstream projects.

Matthew Day, global LNG analyst at Wood Mackenzie, said in agreement: “It’s a slow year for the wider LNG supply business but a big year for FLNG.”

“LNG project sanctions over the last two years have been few and far between. This reflects the prevailing oversupply in the LNG market. However, the only two projects we expected to be sanctioned this year, Coral and Fortuna, are both floating LNG. This highlights a positive shift in industry perception toward the FLNG concept,” told this website.

“Majors like Eni, Shell, Exxon and recently BP have all now endorsed the floating LNG concept. With stranded gas resources suited to FLNG elsewhere in Africa, Mozambique offers Eni an ideal regime to test this new approach,” he said.

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