A proposed natural gas export project in Mozambique led by Anadarko Petroleum Corp. gained more legitimacy on Friday after securing two more agreements for long-term supply, indicating optimism may be returning to the export market, one analyst said.
The Anadarko-led liquefied natural gas (LNG) project, Mozambique LNG1 Co. Pte. Ltd., the jointly owned sales entity of the Mozambique Area 1 co-venturers, signed a heads of agreement (HOA) with Tokyo Gas Co Ltd. and Centrica LNG Co. Ltd.
The latest co-purchasing offtake agreement calls for delivery of 2.6 million metric tons/year (mmty) from the start-up of production until the early 2040s. No final investment decision (FID) has been made, but some sales and purchase agreements (SPA) are in hand.
“Tokyo Gas and Centrica have a strong global reputation in the industry, and we are delighted they have made this commitment to the Mozambique LNG project,” said Anadarko’s Mitch Ingram, executive vice president of international, deepwater and exploration.
“At 2.6 mmty, this HOA represents a significant portion of the marketing off-take target we have set for FID, and it further reinforces our previous updates on the project, which have stated our focus now is on converting these nonbinding commitments into fully termed sale and purchase agreements.
“Importantly, this HOA brings together the Anadarko-led Mozambique LNG project and two additional prestigious customers, and it is closely aligned with the Japanese government’s desire for a competitively priced and flexible long-term supply of LNG to enhance the nation’s energy security.”
Tokyo Gas and UK-based Centrica in November 2016 signed a memorandum of understanding to collaborate in their LNG activities. The transaction represents the first long-term offtake agreement from Africa for both Tokyo Gas and Centrica.
Tokyo Gas and Centrica are “like-minded” gas suppliers in their countries, said Centrica Group CEO Iain Conn. “Centrica has established strong LNG capabilities over the past few years and this agreement…demonstrates further progress in this growth area of our business.”
For Tokyo Gas, the commitment should contribute to starting up the project, said President Takashi Uchida.
The “first ever joint procurement with Centrica…utilizes the unique central location of Mozambique,” Uchida said, creating a “foundation for flexible LNG transactions to occur between the European and Asian markets. I hope that through this innovative agreement, we can further diversify source and price index, which leads to enhancing our challenges of securing more competitive LNG.”
Centrica supplies energy and services to around 27 million customer accounts mainly in the UK, Ireland and North America. Tokyo Gas is Japan’s largest city gas provider, serving more than 11 million customers primarily in the Tokyo metropolitan area and surrounding Kanto region.
The Anadarko project already has an HOA with Tohoku Electric Power Co. Inc., one of Japan’s leading LNG buyers. Earlier this year, Anadarko said half of the needed off-take contracts were secured for the project to reach FID, which is to be sited offshore East Africa.
During the first quarter, the Mozambique government approved the Golfinho/Atum development plan with Area 1 participants.
“This off-take arrangement takes full advantage of Mozambique’s favorable central location, which enables Mozambique LNG to supply customers in both the European and Asian-Pacific markets,” Ingram said. “The innovative co-purchasing arrangement provides flexibility to assist both customers in proactively managing demand fluctuations in their own home markets.”
The project would be Mozambique’s first onshore LNG development, initially consisting of two LNG trains with total nameplate capacity of 12.88 mmty to support the development of the Golfinho/Atum fields, which are entirely within Offshore Area 1.
Wood Mackenzie research director Giles Farrer said the HOA is a milestone for the project “and another sign that optimism is returning to global LNG markets.”
In 2025, the “full 2.6 mmty,” he said, would represent 25% of LNG supply contracted by Tokyo Gas for procurement and “more than double Centrica’s LNG contracted for procurement. The deal signals Mozambique’s appeal to buyers in both basins and illustrates that European buyers are in the market for long-term LNG contracts as European import dependency rises.”
The additional SPA brings the project “closer to achieving the amount of contracts required to support financing — likely around 9 mmty,” Farrer said. “It could also encourage other buyers to finalize offtake from the project. Market intelligence indicates that other deals are close with Asian buyers, which could encourage those countries’ national export credit agencies to provide funds for the project.”
The transaction with Tokyo Gas and Centrica “looks complicated and is another sign of the rising complexity in LNG contracting,” he added.
Wood Mackenzie analysts assume that part of the volumes likely are to be fixed for delivery into the UK and Japan, “with put and call options for other parts of the volume depending on supply, demand and price dynamics in the Pacific and Atlantic basin.” Analysts expect parts of the volume to be priced on a National Balancing Point basis and partly oil-linked.
“Given there are more proximate LNG markets to Mozambique,” Farrer said, “we would also expect there to be diversion options to alternative markets with pre-arranged profit sharing mechanisms between the two companies and the project.”
Mizuho Energy analyst Paul Sankey said with the latest HOA, “we count 11.1 mmta of agreements for the first two trains, which are expected to have 12.88 mmty LNG capacity. There are “some concerns about extremism in the region, with reports last week that Islamist militants had beheaded 10 villagers in the Cabo Delgado province (northern Mozambique close to the gas fields),” but neither Anadarko nor Eni/ExxonMobil have said they have been affected by violence.
Subsidiary Anadarko MoÃ§ambique Ãrea 1 Lda operates Offshore Area 1 with a 26.5% working interest. Co-venturers include ENH Rovuma Ãrea Um SA (15%), Mitsui E&P Mozambique Area1 Ltd. (20%), ONGC Videsh Ltd. (10%), Beas Rovuma Energy Mozambique Ltd. (10%), BPRL Ventures Mozambique BV (10%), and PTTEP Mozambique Area 1 Ltd. (8.5%).
ExxonMobil Corp. and Eni SpA last year sanctioned the separate Coral South LNG project in Mozambique near Anadarko’s, which together could make the southeastern African nation the world’s fourth-largest gas exporter.
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