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Assessments ongoing to 'preserve' value of Mozambique LNG project: Saipem


Total-led project declared force majeure on April 26

Italian engineering giant awarded EPC contract in 2019

Other Saipem LNG projects on track in Nigeria, Russia

  • Author
  • Stuart Elliott
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  • Alisdair Bowles
  • Commodity
  • Natural Gas

Italian engineering giant Saipem said April 28 it was working closely with France's Total to "preserve" the value of Mozambique LNG after Total declared force majeure on the project because of the deterioration in the security situation in the country.

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Saipem -- which leads a consortium that in 2019 was contracted to build the two-train Mozambique LNG project -- did not, however, give any guidance on how long the force majeure was likely to stay in effect.

Related story: France's Total declares force majeure on Mozambique LNG project

Total on April 26 said it had removed all staff from the site and declared force majeure because it was "unable to perform its obligations" given the security situation, which was something "entirely out of Total's control."

In its Q1 earnings report, Saipem said that following the force majeure declaration, "assessment is ongoing in close cooperation with the client to preserve the value of the project."

"While awaiting further instructions by the client and the outcome of the ongoing assessment between the parties, we are not in a position to evaluate impacts on our financials for 2021," it said.

Speaking on an investor call later April 28, company officials did not give any other guidance on how long the suspension of work could last, saying however that "significant" EPC progress had already been made and that Saipem's aim was to "save the progress accrued so far."

"The market will be promptly updated when the situation becomes sufficiently clear and impacts can consequently be determined," it said.

The company added that activity at Mozambique LNG so far this year had mainly been performed "out of site."

Saipem's chief operating officer for onshore, Maurizio Coratella, said in an interview with S&P Global Platts in late February that it had "transferred off site some of the construction that we would have done on site" in view of the security situation.

Mozambique's 3.5-year-old Islamist insurgency saw militants close in on the site of the project on the Afungi Peninsula at the end of 2020, culminating in a deadly attack on the town of Palma in late March.

Total had hoped to produce the first LNG from the 13.1 million mt/year Mozambique LNG project in 2024; however, with the force majeure declaration, this timeline could be in serious doubt, according to S&P Global Platts Analytics.

"The risk of delay due to violence and civil unrest has underpinned Platts Analytics' long-held view that the project will not reach in-service until 2025 at the earliest, a year past its official in-service target," Platts Analytics' managing analyst Samer Mosis said.

Mozambique LNG has already secured long-term offtake agreements amounting to more than 11 million mt/year with the likes of Shell, France's EDF, China's CNOOC, a partnership of the UK's Centrica and Japan's Tokyo Gas, and a joint venture between Japan's JERA and Taiwan's CPC Corp.

Other Saipem projects

Saipem is also involved in EPC work at a number of other LNG projects, including the Nigeria LNG Train 7 expansion, the Novatek-operated Arctic LNG 2 in Russia, and the Tangguh expansion in Indonesia.

In its Q1 report, Saipem updated progress at all three projects.

At Nigeria LNG, it said activity was "on schedule" and would gear up to "full speed" from the end of Q2.

The project was awarded in Q2 2020 and the initial 12 months were being used to "optimize the execution strategy and de-risk the project supply chain," Saipem said.

The seventh train at NLNG -- expected online in 2025 -- will bring the capacity of the facility to 30 million mt/year from around 22.5 million mt/year currently.

Saipem said its work at Arctic LNG 2 -- whose first 6.6 million mt/year train is due online in 2023 -- was also "on schedule", while at Tangguh re-mobilization efforts were "ongoing" after the last pandemic wave.

"Key construction milestones were achieved ahead of the agreed schedule, and new schedule targets were agreed with client," Saipem said.