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African LNG project is 'big part' of Chevron's deal for Anadarko

Chevron Corp.'s planned $33 billion acquisition of Anadarko Petroleum Corp. would not only help the supermajor in the U.S. Permian Basin but would give it a stake in one of the leading LNG export projects in the world, the Mozambique LNG development in Africa.

"If you think about where there is a huge amount of gas that has been discovered that has yet to be developed, East Africa is the number one spot," said Nikos Tsafos, a senior fellow with the energy and national security program at the Center for Strategic and International Studies.

"So you do have a lot of running room," Tsafos said. "And it's quite possible to see, over the next 10 to 15 years, Mozambique emerging as one of the premier LNG exporters in the world. I'm not sure that it was the driving force, but clearly, LNG is going to a big part of the value that Chevron gets from this acquisition."

Anadarko leads the team behind Mozambique LNG, the African nation's first onshore LNG export facility. It would be located near an approximately 75-Tcf natural gas field called Offshore Area 1, operated by Anadarko. The approximately $20 billion terminal is at an advanced stage of preconstruction development, with long-term contracts covering about 9.5 million tonnes per annum of its 12.88-mtpa nameplate capacity. Customers include Royal Dutch Shell PLC, Tokyo Gas Co. Ltd. and CNOOC Ltd. The project developers could reach a final investment decision, or FID, by the time the Chevron-Anadarko deal closes. Anadarko had expected to commercially sanction the project in the first half of the year.

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"This project is fast approaching FID, a timeline we fully support," Chevron Chairman and CEO Michael Wirth told analysts on a call after the April 12 deal announcement.

Chevron called the project a "world-class LNG resource," with "one of the largest discovered gas resources in the world." Chevron also highlighted Anadarko's domestic holdings, including Permian assets that CreditSights said fit "like a glove."

Analysts said Mozambique LNG would be complementary to Chevron's existing LNG business, allowing the supermajor to diversify its LNG portfolio with a project in a key region.

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But Chevron's move into the new generation of LNG projects did not follow the same path as other supermajors, which have used deep pockets to advance export projects without first securing off-take agreements with customers. In recent years, Chevron had expressed little appetite for taking on the additional risk of building another LNG megaproject on a speculative basis in a market where major oil and gas companies face pressure to focus on capital discipline. Chevron had already developed two large export terminals in Australia, including the Gorgon LNG facility that ran billions of dollars over budget. Chevron also owns the largest stake in Angola LNG in West Africa.

Before buying Anadarko, Chevron had few new LNG projects to develop in the current investment cycle apart from expansion opportunities in Australia and a long-shot project in Western Canada, said Akos Losz, a senior research associate at Columbia University's Center on Global Energy Policy.

"They generally didn't have a very good track record in Australia, and previously they also had some technical issues in Angola," Losz said. "So their overall experience with LNG has not been very good in the past decade, but their problems were largely location- or project-specific. They have hopefully learned lessons from their previous projects that they can now apply in Mozambique."

Anadarko, its partners and Mozambique have worked to reduce security risks and cut costs, including sharing some onshore infrastructure with the competing Exxon-led project, Losz said. "This project appears to be better prepared to mitigate delays and cost overruns than the Australian projects were in a similar stage of development," he said.

Chevron's purchase of Anadarko is unlikely to speed up the timetable for the Mozambique LNG project. And it is unlikely to add pressure on U.S. LNG developers seeking to commercially sanction their projects, Tsafos said in an interview. But because the deal would bring with it Chevron's capacity to take on large projects, it could change the expansion potential for Mozambique LNG.

"This is still just the first phase," Tsafos said. "There is a lot more gas there. So you can imagine a company like Chevron being more interested and willing to move faster to the expansion."