LNG a-go-go

John Sheehan

November 1, 2016

Mozambique’s emerging LNG business may be picking up after a quiet period. John Sheehan reports on progress made, including Eni’s Coral FLNG project.

An Anadarko employee. Images from Anadarko.

A recent deal struck by BP to take all of the liquefied natural gas (LNG) produced by the Eni-operated Coral South floating LNG (FLNG) facility, expected to be installed offshore Mozambique, appears to signal a shot in the arm for the project.

The agreement with the Area 4 concession partners, Eni East Africa, Galp Energia, Kogas and Empresa Nacional de Hidrocarbonetos, covers the purchase of LNG for over 20 years. The deal is conditional on the final investment decision (FID) being taken for the project, which is currently expected around the turn of the year.

Made in May 2012 and outlined in 2013, the Coral discovery proved the existence of a high quality field of Eocenic age with excellent productivity, Eni said this February. It is estimated to contain around 16 Tcf of gas in place.

Mozambique’s Area 4 is the world’s fifth largest natural gas discovery in the last 30 years, with more than 85 Tcf estimated natural gas resources in place. It covers 10,000sq km in the Rovuma Basin, about 50km off the coastline at Palma, more than 200km from the capital Maputo, and close to the Tanzanian border.

The plan of development, the very first to be approved in the Rovuma Basin, foresees the drilling and completion of six subsea wells and the installation of subsea production systems, umbilicals, risers and flowlines and the construction and installation of a state-of-the-art FLNG facility with a capacity around 3.3 MTPA.

BP will use LNG from the contract to help meet its global supply commitments, with Mozambique ideally placed to ship LNG to China and emerging markets in southeast Asia.

Under starter’s orders

The Coral South LNG sales deal signals a boost for the nascent LNG business in Mozambique, progress on which has been slow in recent months.

Giles Farrer, director in Wood Mackenzie’s LNG research group, told OE that Coral was the project that was likely to see first movement in the country, ahead of Anadarko’s Mozambique LNG plans.

“The agreement gives Eni certainty of offtake and at a reasonable price,” he says. “It also gives Eni some assurances around offtake because FLNG is new technology and there is uncertainty around what utilization the facility will run at and exactly when it will be ready and how quickly it will ramp up. We understand that under the contract, BP will take what Eni is able to produce out of the facility.”

Coral’s FID could come soon, especially as significant cost savings have been achieved on the project. “Where previously they were talking about a 2.5 MTPA facility, they are now talking about a 3.3 MTPA facility,” Farrer says. “They haven’t really increased the cost estimates; despite the fact they have increased the capacity. They have achieved some pretty significant economies of scale.”

Eni is understood to have already ordered a FLNG vessel from South Korea-based Samsung Heavy Industries (SHI), which is working in a consortium with France’s Technip and Japan’s JGC on the project.

Funding

“There are two key questions on Coral for us,” Farrer adds. “The first is around finalizing the financing, because of well publicized issues Mozambique has had with regards to some of the lending it has had from the International Monetary Fund (IMF), there is increased scrutiny from a financing point of view.” The IMF suspended lending to Mozambique in April because it deemed the country had violated the terms of its agreement.

“Structuring the financing deals in a way that is going to be satisfactory for the various export credit agencies and financial institutions is taking some time, although we think it is pretty close,” Farrer says. Eni recently met bankers in London to discuss project financing for the field development.

Farrer says that the second issue concerns the exact makeup around participation. ExxonMobil is strongly rumored to have moved to take a position in Area 4, either on its own or in a joint venture partnership with Qatar Petroleum. It could also take a stake in Area 1. Exxon already holds three offshore exploration license blocks of its own to the south of Eni’s discoveries.

“You have all that uncertainty around how that deal might be structured,” Farrer says. “If you were to get a supermajor of that caliber, we would expect a company like that to look again at the engineering and look for opportunities to drive down costs further.

“We’re also expecting to see cost deflation and, given the state the market is in, we’re starting to see engineering, procurement and construction (EPC) contractors for land-based LNG facilities being much more aggressive in their bidding,” he adds.

Farrer says that the land-based LNG EPC contractors have been tied up with a slew of work in Australia and the US in recent years, but that that it is now slowing down.

“That will be looked at as an opportunity when they look at the engineering for cost deflation to get the onshore project competitive with some of the pre-FID projects being considered in the US.”

Mamba

In addition to Coral, Eni has the Mamba project on the horizon. Mamba’s initial stage includes the construction of two onshore LNG trains with a combined capacity of 10 MTPA and the drilling of 16 subsea wells, with startup in 2022, for the production of 340 Bcm of gas, according to the independent development plan but coordinated with the operator of Area 1. The FID is expected in 2017.

While movement is being seen on the Eni project, Anadarko’s US$20 billion, two-train 12 MTPA project in Area 1 has been stalled.

The company has experienced problems over its plans to resettle local people from the landfall area for the LNG lines in Palma, Cabo Delgado province. It has already delayed its FID on the project several times.

The onshore scope of the work includes two LNG trains, each with capacity of 6 MTPA, which is an increase of 1 MTPA over the original plan, while maintaining an estimated cost that is consistent with the co-venturers’ original projections. The scope also includes two LNG storage tanks, each with capacity of 180,000cu m, condensate storage, multi-berth marine jetty and associated utilities and infrastructure.

Anadarko operates Offshore Area 1 with a 26.5% working interest. It has picked a consortium of CB&I, Chiyoda and Saipem (the CCS JV) for the initial development of the onshore LNG park. The selection of the CCS JV is subject to negotiation and entry into a definitive agreement prior to taking FID.

Under seismic focus

 

Interest in Mozambique is translating into contracts, for the seismic community at least.

Norway’s Spectrum is planning a long-offset broadband 2D multi-client seismic survey after recently being awarded Tender Area 2 covering the southern Rovuma and northeastern Zambezi basins, offshore Mozambique.

French geoscience firm CGG won an extensive multi-client program from the Instituto Nacional de Petroleo (INP) to acquire seismic data offshore Mozambique.

CGG’s program includes a 2D survey of over 6550km in the offshore Rovuma basin, including blocks R5-A, R5-B and R5-C, and a large 3D survey over the Beira High in the Zambezi Delta. The 3D survey is expected to cover up to 40,000sq km, subject to pre-commitment. It will cover blocks Z5-C and Z5-D and surrounding open acreage in this deltaic area which is believed to be prospective.

CGG has also won an onshore airborne gravity and magnetic survey in the Southern Mozambique Basin. The proposed multi-client seismic program in the Mozambique Zambezi region will include marine gravity and magnetic data, to aid regional interpretation. 

Spectrum’s survey, meanwhile, will be a variable grid with lines spaced from 10km to 20km, totaling in excess of 16,000km.

The new seismic data will image the subsurface potential in open areas of the southern Rovuma Basin and the western flanks of the Kerimbas Graben, west of the Davie Fracture Zone, revealing the prospectivity in this region for the first time, Spectrum says.

Spectrum said the survey will also aim to image the synrift structures and Late Cretaceous pro-delta stacked turbidite sequences in the northeast Zambezi Depression. “New 2D data will play a key role in refining our understanding of the hydrocarbon potential of the area and accelerate hydrocarbon exploration activity in what is believed to be an oil-dominated region offshore Mozambique,” Spectrum says.