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Anadarko reaches FID on 12.88 mil mt/year Area 1 Mozambique LNG project

Singapore — Houston-based Anadarko Petroleum Corp and its partners in Mozambique's Offshore Area 1 exploration area have taken a final investment decision on the Area 1 Mozambique LNG project, Anadarko said Tuesday in a statement.

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This FID is a signal for construction to begin on what will be one of two large onshore LNG export projects planned for Mozambique, the other being the 15.2 million mt/year Rovuma LNG project led by an Eni-ExxonMobil joint venture that is expected to reach FID by the end of 2019.

A third project in Mozambique is smaller and based on a floating system, the Eni-led 3.4 million mt/year Coral South FLNG, which was sanctioned in June 2017 for commissioning in 2022.

The three projects will give the country an export capacity of over 30 million mt/year, making it one of the world's biggest LNG suppliers.

Mozambique has the potential to be one of the world's top five LNG producers by the mid-2020s, alongside Qatar, Australia, the US and Russia.

Related infographic: Mozambique gears up to join league of top global LNG suppliers

Wood Mackenzie expects the two onshore Mozambique LNG projects to be the second and third most valuable oil and gas projects sanctioned this year, after the Arctic LNG-2 project in Russia, analyst Jon Lawrence said.

He said at $20 billion, the Area 1 FID is also the largest oil and gas project sanctioned in sub-Saharan Africa.

The Area 1 Mozambique LNG project is expected to start production around 2024, at a time when a number of new LNG projects are due to come online globally, potentially leading to a new cycle of glut in the global LNG market if demand does not catch up.

Anadarko, the operator of the project, said 11.1 million mt/year of long-term LNG sales contracts have already been secured with LNG buyers in Asia and Europe, representing 86% of the plant's nameplate capacity.

"As the world increasingly seeks cleaner forms of energy, the Anadarko-led Area 1 Mozambique LNG project is ideally located to meet growing demand, particularly in expanding Asian and European markets," Anadarko chief executive Al Walker said.

"Additionally, the project is expected to have a significant domestic gas component for in-country consumption to help fuel future economic development," Anadarko said in the statement.

OCCIDENTAL TAKEOVER

Anadarko is set to be taken over by Occidental Petroleum after a recent bidding war with oil major Chevron that saw Occidental making a revised offer of $57 billion for Anadarko. The deal is expected to close by 2020.

In early May, Occidental reached an $8.8 billion deal to sell Anadarko's African assets to French oil major Total -- including its stake in Mozambique LNG -- assuming Occidental completes the acquisition of Anadarko.

The financing process for reaching FID for Area 1 Mozambique LNG was not affected by Occidental's takeover deal and the asset sale to Total.

"The 'takeover' could take place anyway in a few months. In the meantime, Anadarko must do everything as if it were to continue the project; to add more value to the assets," LNG consultant Guy Broggi told S&P Global Platts on Tuesday, before the announcement.

The LNG project's portfolio of long-term sales are signed and valid with the condition to close the FID, he said.

"Anadarko will either sell the ready-to-go project ...or keep it if the takeover is not done," Broggi added.

The Area 1 Mozambique LNG project now has SPAs in the top LNG importing markets including Japan, China and India, in addition to Indonesia and portfolio players. A Heads of Agreement was also signed with Thailand's PTT Exploration & Production in June 2018, to sell 2.6 million mt/year, but the deal has not been converted into a binding agreement.

"Flexible commercial arrangements, including an innovative co-purchase agreement with Tokyo Gas and Centrica, have been instrumental in securing the project a roster of high-quality customers in a crowded LNG market," Frank Harris, Head of LNG Consulting at Wood Mackenzie, said.

The feedgas for the liquefaction terminal will come from the Golfinho/Atum field located in the Offshore Area 1, with reserves estimated at 2125 Bcm, according Mozambique LNG.

The partners in Offshore Area 1 are Anadarko (26.5%), Japan's Mitsui (20%), Empresa Nacional de Hidrocarbonetos (15%), India's ONGC Videsh (10%), Beas Rovuma Energy Mozambique Limited (10%), India's BPRL Ventures Mozambique B.V. (10%) and Thailand's PTTEP (8.5%).

(Adds analyst comments, project details throughout.)

--Eric Yep, eric.yep@spglobal.com

-- Lucie Roux, lucie.roux@spglobal.com

--Edited by Wendy Wells, wendy.wells@spglobal.com