China plans to have its companies in the oil sector strengthen their stakes in natural gas blocks in Mozambique, where so far world scale reserves have been discovered.
State-owned China Huadian Corporation is negotiating with Italy’s ENI a stake in block 4 of the Rovuma Basin, where state company Sinopec also bought a 20 percent stake two years ago.
Last week, the Reuters news agency reported that the potential deal involves a 15 percent stake, of the 50 percent that ENI currently owns, but that there are other interested parties and the main issue is the price.
Sector sources have said that ENI is not prepared to lose its operator status on the block, which could put off large multinationals like Exxon or Shell, and that the length of the discussions with Huadian is already significant.
“There is a lot of Chinese interest in Mozambique, with more than one second-tier company in the running,” according to a source cited by Reuters.
The aim, which has not been confirmed by the Italian company, which has only publicly announced its intention to sell assets to finance development projects, is to close the deal before the end of 2015.
Two years ago, CNPC paid US$4.2 billion for 20 percent of block 4 of the Rovuma block, overcoming competition from major companies in the sector in the area where one of the largest recent natural gas reserves – 85 trillion cubic feet – has been identified.
At current prices, which already reflect the fall in the energy market in the last year, the 15 percent stake could be worth about US$1.5 billion.
Asia is the natural market for Mozambican natural gas, and some analysts have mentioned that Mozambique could become a gas production centre for China.
Asia is now considered the only market that is able to monetize the investments already made and yet to be made in the production of liquefied natural gas in Mozambique.
Researcher Loro Horta said in a recent article that China is rapidly asserting itself “as the most important diplomatic and economic player in Mozambique,” investing millions on a “no questions asked” basis.
The natural gas reserves in the sea off Mozambique are evaluated by state company ENH at 250 trillion cubic feet, enough to supply the entire world market for two years.
While the authorities indicate that production will start in 2018, the EIU considers 2020 as a more realistic target, taking into consideration delays in the development of infrastructure and concerns of companies in the sector in relation to an oversupply in the market, among other factors.
Analysts consider that when production is at “cruising speed”, Mozambique will be the third largest producer of natural gas, behind Qatar and Australia.
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