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Mozambique LNG signs first binding long-term contract with France's EDF

Highlights


Japan, Thailand and Europe Mozambique's key buyers

Further SPAs needed before progressing to FID

Mozambique LNG and France's EDF have signed a long-term LNG sale and purchase agreement for the supply of 1.2 million mt/year of LNG over 15 years, project operator Anadarko Petroleum Corporation said in a statement Tuesday.

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Mozambique LNG has signed supply agreements for a combined of more than 5 million mt/year, but this is the exporter's first binding contract. A 20-year SPA -- Mozambique LNG's first -- signed with Thailand's state-owned PTT in September for the delivery of 2.6 million mt/year, is still pending approval by the government of Thailand.

"This SPA gives us flexible access to Europe, which is one of our key strategic markets," said Mitch Ingram, Anadarko executive vice president, International and Deepwater Operations and Project Management.

"EDF is one of the world's largest electric utilities, and reaching this SPA continues to validate Mozambique LNG's position as a competitive long-term LNG supplier and as one of the world's leading greenfield projects."



The Mozambique LNG project will be Mozambique's first onshore LNG development, initially consisting of two LNG trains with total nameplate capacity of 12.88 million mt/year to support the development of the Golfinho/Atum fields located entirely within Offshore Area 1.

Partners in the project comprise Anadarko (26.5%), Mitsui (20%), ONGC Videsh (16%), Empresa Nacional de Hidrocarbonetos (ENH) (15%), Bharat PetroResources (10%), PTT Exploration & Production (8.5%) and Oil India (4%).


AN INDUSTRY MILESTONE


Anadarko and its partners will need to secure further offtake agreements before progressing to the final investment decision stage, for which a firm timeline is yet to be set, but this agreement is a significant step in the right direction.

The future of Mozambique LNG is important not only for Mozambique and its developers, but for the LNG industry as a whole, as it could set a precedent as the first East African onshore LNG project to be sanctioned and one of the few large-scale greenfield facilities globally to reach financial close in recent years.

LNG project developers continue to face great difficulties after three years of global structural oversupply and depressed global commodity prices. The LNG industry's transition towards smaller, shorter and more flexible supply agreements is putting further pressure on sellers and investors.

Mozambique's most recent supply agreement, signed in December for the delivery of up to 280,000 mt/year of LNG to Japanese utility Tohoku Electric, is a reflection of this industry transition.

"Mozambique LNG is cognizant of such trends in our discussions with potential customers, and it is fair to say that our deal with Tohoku Electric provides flexibility for the buyer to adjust the volume of LNG delivered to Japan depending on the company's supply and demand situation," Andrew Seck, Anadarko's vice president of LNG marketing and shipping, told S&P Global Platts.


A SHIFTING MARKET


"Producers need to be competitive on price, but also offer sufficient flexibility which will allow our buyers to manage growing uncertainty in their downstream markets," Seck said in a separate interview with S&P Global Platts.

Mozambique LNG expects Japan to be the biggest recipient of its LNG, followed by Thailand, Europe and other Asian countries, and a smaller share of supply to be allocated to the spot and short-term markets, according to a presentation by the company at the Gas Asia Summit in Singapore on October 25.

For Japanese buyers, the ability to mitigate new risks through greater supply flexibility and diversification is becoming particularly important as downstream competition grows, and some utilities prepare to enter the trading space in a bid to boost optimization capabilities.

Anadarko and its partners have discovered approximately 75 Tcf of natural gas resources in the Prosperidade and Golfinho/Atum complexes in Mozambique's Offshore Area 1, which will be used to supply the onshore LNG plant on the Afungi peninsula in Cabo Delgado province.

The gas reserves are sufficient to support two LNG trains, each with a capacity of 6 million mt/year, and a potential expansion to approximately 50 million mt/year.

--Abache Abreu, abache.abreu@spglobal.com
--Edited by Jonathan Fox, jonathan.fox@spglobal.com