Marine agreements bring Moz LNG FID closer

After months of locking heads with Eni and Anadarko, Mozambique has finally approved the Rovuma Basin marine concession agreements After months of locking heads with Eni and Anadarko, Mozambique has finally approved the Rovuma Basin marine concession agreements.
By Leigh Elston 23 June 2017 0 26495
Anadarko operations off the Mozambican coast. The company plans to base an onshore site at Afungi. (Anadarko)

Mozambique has signed three crucial agreements needed to drive forward its planned domestic and export-oriented gas projects and to iron out complications over marine access rights and the use of shared infrastructure.

The country’s energy ministry signed a memorandum of understanding with Shell on Monday to build a GTL plant with a capacity of 38,000 barrels per day in the Afungi industrial park near Palma in Cabo Delgado. A day later, Mozambique’s cabinet approved two contracts covering access to and use of the shared maritime infrastructure that will be needed during the construction and operation of Eni and Anadarko’s giant Rovuma Basin LNG projects. 

Alasdair Reid, Wood Mackenzie’s upstream research manager for sub-Saharan Africa, told Interfax Natural Gas Daily the approvals represent “a critical step on the path to FID for both Mozambique LNG projects”.

“They establish a regulatory framework for the shared physical infrastructure at Afungi that will support both the Area 1 and Area 4 trains. This includes a platform and breakwater for the [materials offloading facilities: MOF] as well as the offloading jetty and berths for LNG tankers,” he continued. 

They also establish which parties have access to the sea from the 6,000 hectare Afungi LNG project site and the planned 18,000 hectare industrial zone that will surround it. Marine access is essential if Shell’s GTL project and a second domestic gas project – a 1.2-1.3 mtpa fertiliser plant proposed by Norwegian company Yara – are to move forward.

The government had been pushing for a provision within the contracts to ensure marine access for users of the industrial park, several sources told Interfax Natural Gas Daily. However, under Mozambique’s 2014 LNG decree law, the Area 1 and Area 4 concessionaires have exclusive access rights to the ‘LNG Marine Terminal Area’ – which covers most of the bay around Palma – and control of over marine traffic within it. The latest agreements approved by the government maintain these rights.

However, Interfax Natural Gas Daily understands the agreements also allow third parties use of and access to the MOF and to the deepwater channel that runs through the bay to the mouth of the river near Palma. 

“[Therefore,] whether Shell has access to the sea will depend on where they plan to build their facility [within the industrial park]. Shell hasn’t made those plans public,” a Maputo-based industry source told Interfax Natural Gas Daily

If Shell builds a pier further north in the bay, closer to the mouth of the river, “it would have sea access rights and could still benefit from proximity to the upstream projects”, another industry source said.

Still looking for buyers

The marine concession agreements mean one more piece of the puzzle is in place for the LNG projects, but there are other details to finalise. 

Eni and Anadarko will need to start to move around 2,000 people from the Afungi site. Mozambique’s minister of mineral resources and energy, Leticia Deusina da Silva Klemens, said the government had approved the resettlement action plan (RAP) in November 2016. However, the companies still need to secure construction and environmental licences for the RAP before work on resettlement can start, Anadarko spokesperson Helen Wells told Interfax Natural Gas Daily.

Anadarko also still needs to find customers for its LNG. The company has signed heads of agreements (HOAs) to sell 8 mtpa of the plant’s 12 mtpa output but needs to convert them into binding contracts. “Key buyers continue to express a strong interest in Mozambique LNG, despite current weakness in the global LNG market. We are actively converting existing HOAs to [sales-and-purchase agreements] while at the same time pursuing additional sales opportunities,” Wells said. 

Eni is likely to make slower headway on its 10 mtpa project. The company is still finalising a $2.8 billion sale of 50% of its stake in Area 4 to ExxonMobil. Once the deal closes, which is expected to happen in September, the US supermajor will take over operatorship of the project and will likely want to review its design and strategy.

“Given the progress with marketing and government approvals, we expect Anadarko’s Area 1 project to reach FID first – most likely in 2018. For Area 4, we anticipate a 2019 FID,” said Reid.

As the plants are estimated to take at least five years to construct, first LNG is not expected until 2023 or 2024. Shell would aim to bring its GTL facility online one or two years after that.

The company needs 8.8-9.3 million cubic metres per day (MMcm/d) of gas for the GTL plant, while Yara needs 2.2-2.5 MMcm/d for its fertiliser facility.

There should be more than enough gas for both projects. Anadarko has signed an MOU to supply up to 11.3 MMcm/d of gas to the domestic market over the life of its LNG project, while Eni has committed 25% of the gas from the Mamba field – which is estimated to hold around 1.27 trillion cubic metres of recoverable reserves, according to Woodmac estimates.