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Anadarko and Eni team up for Mozambique LNG plant

21 Dec 2012 17:55:41 | glm

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Mozambique's ambitions to establish itself as a key LNG exporting hub advanced on Friday, when Anadarko Petroleum and Italy's Eni, the lead stakeholders in two proposed liquefaction projects in the east African state, signed a preliminary agreement to join forces for a unified LNG development.

US-headquartered explorer Anadarko said that the heads of agreement (HoA) with Eni has established the "foundational principles for the coordinated development of common natural gas reservoirs" spanning the Anadarko-operated Offshore Area 1 and Offshore Area 4, operated by Eni.

The two permits in the Rovuma Basin are estimated to contain more than 89 trillion cubic feet of recoverable gas resources.

"The HoA is designed to facilitate a work programme whereby the two operators will conduct separate, yet coordinated, offshore development activities, while jointly planning and constructing common onshore liquefaction facilities in the form of an LNG park in the Cabo Delgado province in northern Mozambique," Houston-based Anadarko said in a statement.

The agreement, thought to have been encouraged by the government's desire to deal with one consolidated entity, will help the stakeholders stay on track to bring the first phase of export facilities - some 20 million tonnes per annum (mtpa) - into operation by 2018.

Given the size of the reserve base, the onshore facilities, now in the front-end engineering design (FEED) phase, will be geared up to expand to a 10-train 50mtpa export facility over time, Anadarko said.

There are broadly two conventional business models under which the onshore infrastructure consolidation could develop, according to UK-based consultant Leigh Bolton.

The first - akin to the Qatari export model - would be for both companies to form a special purpose vehicle and share the liquefaction revenue in line with the equity stakes in that joint venture.

The second, on the lines of the model that evolved in Trinidad, would be for the shared onshore facility to operate on a tolling basis, whereby providers of the feedgas pay a liquefaction toll and then sell LNG in proportion to their feedgas.

Given that there are only two operators at this stage, the model that would best suit Anadarko and Eni could be more similar in scope to the first model, according to Bolton, as that might be "an easier way both for the Mozambican government and the companies involved".

"[However,] if there were multiple joint ventures involved in the upstream, then rather have 20-30 entities involved in the equity of a liquefaction plant, it would be easier to operate a tolling facility where each counterparty is paid for whatever feedgas they provide."

"Either could work," Bolton said. "I don't think it will take a long time to come to an agreement on which commercial model to adopt."

The more problematic issue is the lack of a gas law in the country. "That will take longer," Bolton said, adding that the pace of development "will be dictated by legislation that is not yet there".

Nevertheless, the move towards consolidation already illustrates that the operators are in close contact with the government and aligned with its agenda to keep project duplication to a minimum and achieve synergies through shared economies of scale.

By encouraging Anadarko and Eni to consolidate their onshore projects, the government is not only minimising the number of permits it will have to issue, but ensuring the development of only one export port, unlike the recent development in eastern Australia, where three independent projects are being developed at one site.

"Mozambique and Tanzania will develop in a different way to Qatar and Australia because they are starting with a blank sheet of paper," Bolton said.

"The government has looked at all the other approaches and are effectively choosing the best option for Mozambique."

FEED contract awarded

Anadarko also announced that the FEED contracts for the offshore and onshore developments have been awarded, which should pave the way for a final investment decision on the first phase of the project before the end of 2013.

The joint onshore LNG FEEDs will be performed by three parties, comprising joint ventures between Japan's JGC and Chiyoda, Texas-based Fluor, CB&I and US-headquartered Bechtel, Anadarko said.

While Anadarko and Eni are the respective operators of offshore areas 1 and 4, with controlling stakes of 36.5% and 70%, they both share the resource with a number of upstream partners.

Japan's Mitsui holds a 20% share in offshore area 1, alongside India's BPRL Ventures (10%) and Videocon (10%), Thailand's PTT (8.5%), and Mozambique's Empresa Nacional de Hidrocarbonetos (ENH) 15%.

The other partners with Eni in offshore area 4 are Portugal's Galp Energia (10%), South Korea's KOGAS (10%) and ENH (10%).

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