Mozambique - LNG
Mozambique stands on the cusp of transformative economic growth driven by the development of one the largest natural gas discoveries in the world. In the next five years, Mozambique expects to see nearly $60 billion in investment to develop its offshore natural gas reserves and an onshore facility that will convert the gas to liquefied natural gas (LNG) for export to global markets.
The Islamic State-affiliate primarily operates in Cabo Delgado Province (CDP), which is also the site of the major LNG investments being led by Total and the ENI/ExxonMobil consortium, but maintains networks in neighboring Niassa and Nampula provinces, and has proven capable of attacking villages in southern Tanzania. In early 2019, the insurgents killed a contractor associated with the LNG project and there have since been several other victims among LNG company staff. However, to date, the insurgents’ target remains villages and government forces and institutions. While the violence has not directly impacted the LNG project site, it has raised costs and put a damper on follow-on investments in CDP that could provide services to the projects in a more permissive security environment. Mozambique’s military and police forces have often proved ineffective in defending many communities in CDP. While Mozambique is in need of outside military assistance, the continued use of private military companies risks further aggravating local grievances.
In June 2019, Anadarko made the Final Investment Decision (FID) on the first of two expected LNG megaprojects. However, nearly a year later, the LNG site (now run by Total) is the center of Mozambique’s COVID-19 outbreak and the violent extremists in the surrounding province have grown in size and effectiveness, declaring themselves an affiliate of the Islamic State and conducting increased attacks throughout the province. ExxonMobil, the co-lead of the second major LNG project in northern Mozambique announced in April 2020 that it would delay FID on its project until at least 2021 due to the impact of the COVID-19 pandemic on global commodity prices.
French energy giant Total on 26 April 2021 confirmed it is suspending work on a massive $20 billion gas project in northern Mozambique following the latest jihadist assault on a nearby town last month. "Considering the evolution of the security situation... Total confirms the withdrawal of all Mozambique LNG [Liquefied Natural Gas] project personnel from the Afungi site," the company said in a statement. Total added that it was declaring a "force majeure" situation beyond its control, a legal concept meaning it can suspend fulfilling contractual obligations. A March 24 jihadist raid on Palma in Mozambique's northern Cabo Delgado province prompted Total to remove remaining staff from the natural gas site. It had already evacuated some workers and suspended construction in January following a series of jihadist attacks nearby.
Mozambique is a small producer of natural gas, but substantial natural gas deposits discovered in Area 1 and Area 4 of Mozambique’s deepwater Rovuma Basin, which lies off the northern coast of the country, could transform the country into a significant liquefied natural gas (LNG) exporter. Mozambique’s advances in the LNG industry have been hampered by repeated militant attacks in Cabo Delgado. Since March 2020, militants have twice targeted Mocimboa da Praia, a port town not far from Total’s LNG project.
According to the Oil & Gas Journal, Mozambique holds 100 trillion cubic feet (Tcf) of proved natural gas reserves and is the third-largest holder of proved natural gas reserves in Africa after Nigeria and Algeria. Mozambique produced 212 billion cubic feet (Bcf) and exported 148 Bcf of natural gas in 2018. South Africa received 81% of Mozambique’s natural gas exports via the 535-mile Sasol Petroleum International Gas Pipeline. The Rovuma Basin is a coastal basin situated near the border of Mozambique and Tanzania. The basin extends approximately 31,000 square miles. Most of Mozambique’s recent natural gas exploration has occurred in Area 1 and Area 4 of the Rovuma Basin. U.S.-based Anadarko Petroleum, which was acquired by Occidental Petroleum, led exploration activities in Area 1 before France-based Total S.A secured Anadarko’s share (26.5%) of the LNG project in September 2019. U.S.-based ExxonMobil, Japan-based Mitsui, and South-Africa based Sasol also operate in the Rovuma Basin.
Area 1 of the Rovuma Basin is 25 miles offshore and covers 4,063 square miles. Area 1’s recoverable natural gas resources are estimated to be 75 Tcf, and discoveries in the Prosperidade and Golfinho-Atum complexes of Area 1 include Atum, Barquentine, Camarao, Golfinho, Lagosta, Orca, and Windjammer. An onshore LNG facility with the potential capacity of 6.6 billion cubic feet natural gas per day (Bcf/d) will be built in Cabo Delgado to process natural gas produced in the region.
Area 4 of the Rovuma Basin is 31 miles offshore and spans 5,405 square miles. Area 4’s recoverable natural gas resources are estimated to be 85 Tcf. Carol field, located in Area 4, is being developed by Italy-based Eni. Eni is also constructing an ultra-deepwater floating liquefied natural gas (FLNG) facility to process the natural gas produced in Carol field. The facility could process up to 447 million cubic feet of natural gas per day (MMcf/d).
A $15.8 billion final investment decision (FID) was secured to finance the Rovuma LNG project from a consortium of export credit agencies and 20 commercial banks in 2019. The United States Export-Import (EXIM) bank was the largest lender in the group, providing a $4.7 billion loan for the project. The FID was to be implemented this year, but it has been put on hold until 2021 because of the effect the novel coronavirus (COVID-19) mitigation efforts have had on oil prices.
The Board of Directors of the Export-Import Bank of the United States (EXIM) on 14 May 2020 unanimously voted to amend the agency’s previously approved September 2019 direct loan supporting U.S. exports for the development and construction of an integrated liquefied natural gas (LNG) project located on the Afungi Peninsula in northern Mozambique. Today’s board action amends the original scope of EXIM’s financing of the project from exclusively the onshore portion of the LNG plant and related facilities to also allocate an estimated $1.8 billion of the estimated total of $4.7 billion (decreased from the original $5 billion) to support the project’s offshore production. As a result, the transaction now will support an increased number—16,700—of estimated American jobs over the five-year construction period.
EXIM President and Chairman Kimberly A. Reed. “As was previously underscored, private financing was not available for this project given its size, complexity, and risk—necessitating support from EXIM. We were told that China and Russia were slated to finance this deal before our EXIM board quorum was restored by the U.S. Senate one year ago. This is a great example of how a revitalized EXIM ... can help ensure the use of ‘Made in the U.S.A.’ products and services, without ceding ground to countries like China and Russia.”
As part of EXIM’s historic 2019 reauthorization, Congress directed EXIM to establish the “Program on China and Transformational Exports.” The Program’s purpose is to advance the United States’ comparative leadership in the world with respect to China and strengthen America’s competitiveness through EXIM’s support of transformational U.S. exports—and the U.S. jobs that make them possible—as U.S. companies seek to compete and win in the global marketplace.
As a major integrated liquefied natural gas (LNG) project in Mozambique advanced toward fruition, in July 2020 the Export-Import Bank of the United States (EXIM) reaffirmed its continuing support for the development by initiating the process of providing $4.7 billion in financing that will support an estimated 16,700 American jobs over the five-year construction period.
On July 16, 2020, Japan’s Nippon Export and Investment Insurance (NEXI) announced plans to provide loan insurance for the Rovuma LNG offshore. The $2 billion, 18-year instrument will cover political and credit risks for the Area 1 block. On July 17, 2020 Total announced the signing of a 14.9 B$ senior debt financing agreement for Mozambique LNG. Total is a broad energy company that produces and markets fuels, natural gas and low-carbon electricity. This project is the country’s first onshore LNG development. It includes the development of the Golfinho and Atum natural gas fields located in Offshore Area 1 concession and the construction of a two-train liquefaction plant with a total capacity of 13.1 million tons per annum. Mozambique LNG represents a total post-FID investment of 20 B$. The project financing amounts to 14.9 B$, the biggest ever in Africa, and includes direct and covered loans from 8 Export Credit Agencies (ECAs), 19 commercial bank facilities, and a loan from the African Development Bank.
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