Despite impressive GDP growth rates and estimates of 180 trillion cubic feet (tcf) of natural gas offshore from the Province of Cabo Delgado, the new gas economy in Mozambique does not come without its challenges. While Mozambique has had a small natural gas industry for a number of years now, the significant offshore gas finds in the Rovuma basin are necessitating a comprehensive consideration of the future of the natural gas industry in the country. Both Anadarko and Eni, the large multi-national oil & gas companies who plan to develop the reserves, have hurdles that they must overcome in order to monetise these precious resources. The IMF is predicting staggering growth rates for Mozambique during the first half of the next decade, with GDP expected to grow by 24% per year. For this small East African nation to reach its growth aspirations, meeting these challenges head-on will be critical.
Anadarko is making steady progress in its negotiations with the government. It has announced that it had reached initial agreements with the Government of Mozambique and expects to continue with progress over the course of 2016. They have also stated that Heads of Agreement (HOAs) are currently in place for 8 out of the 12 million tonnes per annum (mmtpa) of the planned production from Area 1. The challenge now is to convert the HOAs into bindings Sales and Purchase Agreements (SPAs). In total, it is estimated that 9-10 of the 12 mmtpa need to reach the SPA stage before a Final Investment Decision (FID) can be taken by Anadarko for its onshore liquefied natural gas (LNG) facility. As marketing efforts continue, PwC expects to see FID reached by late-2016 on their onshore Afungi LNG Plant which will liquefy the gas produced by Area 1.
Eni is facing a different set of challenges. Not only are they contending with similar issues to Anadarko when it comes to their onshore LNG facility, but they are also working to bring Floating LNG (FLNG) into production which has unique technological challenges compared to onshore installations. Despite the challenges for this development, known as Coral LNG, Eni has made strides in its pursuit of FID. They are currently awaiting approval for their Plan of Development (POD) which seems likely to be the final hurdle before FID can be taken. We expect to happen within the first half of 2016. Post-FID, Eni will need to appoint a contractor for the ship construction to begin.
For their onshore project, Mamba, they do not seem to have made as much progress as Anadarko which is likely due to the fact that they have been focussed on the floating solution to bring first gas (and cash flows) earlier for both the country itself as well as Eni. It should be noted, however, that milestones have been achieved, including the resolution of an important field boundary/unitisation issue with Anadarko in late-2015. The key for 2016 will be to focus on community engagement in order to hopefully reach FID for Mamba in late-2016.
The natural gas industry in Mozambique is currently at a crossroads. Overall, PwC sees that the LNG projects are core strategic plays in the portfolios of both Anadarko as well as Eni. They are both making significant progress as the world watches. East Africa is on the radar, and we expect it to make its grand entrance onto the main stage quite soon!
Will Anadarko and ENI overcome these key challenges and drive the future of the natural gas industry in Mozambique? Let us know your thoughts.
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