BP named as buyer for Eni’s FLNG in Mozambique

BP has agreed to offtake LNG from Eni’s planned 2.5 mtpa FLNG project in Mozambique. Interfax understands that under the deal – which is not yet binding – the UK oil major has secured the LNG on an oil-linked, free-on-board basis, at prices competitive with cheap exports that will be coming out of the United States.

With oil costing $50 per barrel, the LNG price would work out at $5.5/MMBtu, a source told Interfax. In return the UK major has also agreed to take on a lot of technical risk and will be flexible if LNG volumes from the project are lower or available later than expected.

Eni, which operates Mozambique’s Area 4, has yet to select the engineering, procurement, construction, installation and commissioning contractor for the FLNG facility. This was initially expected by the end of October, but Interfax understands negotiations are still ongoing and a decision is unlikely to be made until November or December.

Three consortiums are vying for the contract: Daewoo Shipbuilding & Heavy Engineering and KBR; Samsung Heavy Industries, Technip and JGC; and Hyundai Heavy Industries, Chiyoda and Saipem.

Eni submitted the plan of development for the Coral gas field to the Mozambique government in December 2014, but it has yet to be approved because there is disagreement over how the project – which is estimated to cost $5-7 billion – should be structured.

Interfax understands Area 4 shareholders are pushing for a non-integrated model, to ensure lenders to the liquefaction facility do not have recourse to the area’s vast gas reserves – of which the supply to the FLNG plant constitutes only a fraction. However, the government wants to develop the project on an integrated basis.

"We are still working on it," Carlos Zacarias, chief executive at state petroleum regulator INP, said on Thursday, declining to comment further.

Development on track

If the government approves the project before the end of October, then Coral’s development should be on track for an FID in early 2016 and startup by 2019.

Meanwhile, shareholders of areas 1 and 4 have settled on a unitisation agreement for the straddling Prosperidade-Mamba complex and are waiting for the plan to be approved by the partners in both joint ventures. The agreement should be submitted to the government in the next few weeks, sources in Maputo told Interfax.

Progress with Anadarko’s 12 mtpa LNG plant is also moving slowly. The company has yet to submit the plan of development for the Golfinho field because it is still negotiating amendments to the exploration and production concession contract and other commercial agreements with the government.

Interfax understands the start of early works at the Afungi LNG project site, which contractors had hoped would be awarded by October, has now been delayed until March 2016.

However, two smaller works contracts are likely to move forward this year – the first for the construction of the 456 resettlement houses for the families now living in Quitopo, and the other for the realignment of the road running from Palma, the small town at the northernmost tip of Mozambique, to the Afungi LNG park.

Struggle to sell

As with many LNG developers in the market, Anadarko is struggling to find buyers for its gas. While it has signed non-binding heads of agreement for 8 mtpa of the capacity, Interfax understands the company is struggling to convert these deals into binding sales and purchase agreements.

Sources in Mozambique told Interfax that an FID for the giant project has slipped from Q1 2016 to Q3. However, state oil company ENH – which holds a 15% stake in Area 1 and 10% in Area 4 – is confident the project can keep to the original timetable. Its newly appointed Chairman Omar Mitha will be in London next week to try to finalise negotiations between ENH and its partners in Area 1.

The continued delays have been a blow to the subcontractors and service companies that have set up business in Mozambique in the hope of capitalising on the mega LNG project. Many have been forced to slim down their operations and reduce costs, or leave altogether as they wait for the final go-ahead.

For other contractors, Mozambique is now sliding down the priority list.

"Definitely, as a company, from our priorities, this has gone to three," said Mbali Swana, development manager for the Pemba Logistics Base for Muyake and chief executive for property management and development company Prop5.

The fact that Anadarko has not started full negotiations with shortlisted early works contractors, "gives an indication to me it will be 18 or 24 months before they can even talk to me about the supply price," he said.