Massive Mozambiqe LNG project gets green light

  • A pedestrian walks past a construction crane and a statue of Samora Machel, the first President of Mozambique, at sunset in the capital of Maputo on Sept. 3. Mozambique, one of the poorest nations on the planet, is hoping for a financial boost from a $20 billion LNG project being led by French major Total. (Photo/Ben Curtis/AP)

French energy major Total is moving ahead with the $20-billion-plus Mozambique LNG project started by Anadarko Petroleum, which discovered the large offshore gas field in 2011 and with its partners decided in July to begin construction for a 2024 startup.

The East African gas development is one of a half-dozen liquefied natural gas projects sanctioned in the first nine months of the year, totaling almost 65 million tonnes of annual output capacity. The final investment decisions represent a 15 percent boost to global LNG capacity, with several more projects expected to get the go-ahead from investors in the next 12 months.

Total was quick to affirm its plans to move forward in Mozambique after it started to close the deal on its purchase of Anadarko’s Africa assets in the last week of September. The offshore fields that will feed the project hold a reported 75 trillion cubic feet of gas.

The multinational company bought the assets as part of the deal for Occidental Petroleum to take over the rest of Anadarko’s holdings that include valuable properties in the Permian Basin and U.S. Gulf.

“Mozambique LNG is one-of-a-kind asset that perfectly fits with our strategy and expands our position in LNG,” Total CEO Patrick Pouyanne said in a prepared statement. Total is the world’s second-largest LNG supplier, after Shell.

The venture is “largely de-risked,” with almost 90 percent of the output sold through long-term contracts with key buyers in Asia and Europe, Total said.

Even as the project has the benefits of sales contracts in hand and partners from five different countries, Mozambique has its problems. The nation of 30 million people is among the poorest in the world; it’s in default on past international borrowing; and rebels opposed to the government have staged violent attacks.

Total executives have dismissed any concerns, explaining that the company has expertise in operating in unstable, sometimes dangerous markets.

“We are in Venezuela. We are in Argentina. We have this expertise compared to other players,” Laurent Vivier, Total’s senior vice president of gas, said in a presentation Sept. 19 in Houston, according to the Houston Chronicle. “This is something we are used to doing,” Vivier said.

Total also is a major investor in Russia’s Arctic LNG projects.

Total holds a 26.5 percent stake in the Mozambique development, which includes partners from Japan, India, Thailand and Mozambique’s national oil company Empresa Nacional de Hidrocarbonetos.

In addition to its LNG investments in Mozambique and Nigeria, Russia, Papua New Guinea, Australia and the Middle East, the 95-year-old French company also holds LNG offtake contracts at three U.S. Gulf Coast export terminals, and last month said it planned to sign more deals next year to become the largest seller of U.S. LNG.

The Mozambique project received financing help when the board of directors of the Export-Import Bank of the United States voted Sept. 26 to authorize a direct loan of up to $5 billion to support the export of U.S. goods and services for the development.

“Private financing was not available for this project given its size, complexity and risk — necessitating support from EX-IM,” said Chairwoman Kimberly Reed.

“We have been told that China and Russia were slated to finance this deal” before the federally chartered lending agency approved the loan.

It was the bank’s biggest export financing deal in years.

Separate from the EX-IM Bank’s assistance, each of the partners will have to cover their equity stake. Mozambique’s national oil and gas company announced in July it would hold off on making plans to raise money for its share until later this year at the earliest.

The government said it was trying to limit its debt following a default three years ago and expected it could strike a better deal after construction was underway and Total’s takeover completed.

“We’ll go back to the market to seek funding” when conditions become more attractive, said Empresa Nacional CEO Omar Mitha. The government hopes revenues from the project will help the country recover from a loan scandal that forced it to restructure its international debt.

Approvals related to sovereign debt became more rigorous in Mozambique after the International Monetary Fund in 2016 discovered the government had failed to declare $1.2 billion of loans.

While waiting to raise its share of the project costs, the country is looking to collect $880 million in capital gains taxes from the sale of Anadarko’s holdings in the country.

President Filipe Nyusi announced the target for capital gains tax revenues after he met Occidental and Total managers, the Mozambique newspaper O Pais reported in September.

The African nation is not the only country looking for what it considers its fair share from resource development.

The South Pacific nation of Papua New Guinea, led by a new government that took over in May, wants to strike a better financial deal with ExxonMobil and its partners for expansion of the country’s first LNG plant, which started operations in 2014.

The ExxonMobil-led expansion is part of a tandem $14 billion effort — the other led by Total — to more than double Papua New Guinea’s annual LNG export capacity to about 16 million tonnes by 2024.

Total has reached agreement with the government, with ExxonMobil next up to the negotiating table to discuss local jobs and other benefits.

“It (the ExxonMobil deal) has to be better, it has to be far better” than the terms negotiated with Total. “That’s the key point,” Petroleum Minister Kerenga Kua told Reuters on the sidelines of the annual LNG Producer-Consumer Conference on Sept. 26 in Tokyo.

In addition, Kua announced that same day that Papua New Guinea plans to review its natural resource extraction laws, which are more than 40 years old.

“Whilst attracting FDI (foreign direct investment) in the oil and gas sector, reaping and sharing the rewards involving this valuable resource must be equitable to our development partners, investors and the host government and its people,” Kua said in an interview with Reuters.

^

Larry Persily is a former Alaska journalist, state and federal official who has long tracked oil and gas markets and projects worldwide. He is the Atwood Chair of Journalism at the University of Alaska Anchorage School of Journalism and Public Communication.

Updated: 
10/16/2019 - 9:59am

Comments