(2015-11-12) The Italian hydrocarbon company ENI is soon expected to award the contract to construct the floating liquefied natural gas (FLNG) vessel that will supply the world’s markets with gas from Offshore Area 4 in the Rovuma basin off the northern coast of Mozambique.
According to the industry newspaper ‘Upstream’, the award is likely to go to Reef Consortium which is composed of French multinational Technip, JGC (formerly known as the Japan Gasoline Company) and South Korea’s Samsung Heavy Industries. The journal estimates that the total cost of constructing, installing and commissioning the vessel will run to around five billion US dollars.
However, before the contract is awarded it has to be agreed with ENI’s partners in Area 4: GalpEnergia of Portugal, KOGAS of South Korea and Mozambique’s national hydrocarbon company ENH who each have a ten per cent stake. In addition, the Chinese company CNPC owns a twenty per cent stake indirectly through ENI East Africa. It will also need to gain the approval from the state regulator, the National Petroleum Institute (INP).
ENI still hopes to begin production of LNG in 2019 but the company has not yet taken the Final Investment Decision, which is now only likely to happen in early 2016.
One major problem is that the price of gas is closely correlated with the price of oil, and with crude prices dropping by forty per cent over the last year LNG prices have also suffered. In addition, several new supplies of LNG will enter the market shortly, putting downward pressure on prices.
Despite this, ENI has made progress in securing customers. On 29 October ENI announced that it was in the final stages of talks with BP for the sale of LNG from Area 4.
There is little sense of optimism among visitors to this week’s ADIPEC oil conference in Abu Dhabi that oil prices will increase.
The conference heard from Ministers and oil executives that the price of crude is likely at most to rise only moderately in 2016. In addition, there was disagreement over what policies oil producing countries should take to control output.
In the plenary session on Monday the differing views of Oman and the United Arab Emirates were aired in public.
Oman’s Minister of Oil and Gas, Mohammed Bin Hamad Al Rumhy, argued that oil is “a commodity that if we have a few more million barrels extra it will just destroy the market”. He was therefore of the view that there should be intervention in the market to control output.
In addition, the Minister warned that the price of gas needs to change to make LNG projects economically viable. He pointed out that new supplies from Australia and the United States has brought prices down from twelve US dollars per million British Thermal Units (BTU) to just eight or nine dollars.
However, the UAE Minister for Energy, Suhail Bin Mohammed Al Mazroui, argued that maintaining an artificially high oil price through controlling output is a form of subsidy to high cost producers. He stated that over recent years this enabled new producers, especially in the United States, to enter the market and then lower their costs.
In Tuesday’s session, Shell’s Director for Integrated Gas, Maarten Wetselaar was positive about the future for LNG. Following on from a presentation which concluded that global energy demands are expected to increase by 35 per cent over the next twenty years, Wetselaar commented that gas will become the number two source of energy, taking over from coal. He even suggested that gas may replace oil as the number one source of energy at some point during this century.
Of particular concern at the conference is the possible effect on oil prices of the addition of supplies from Iran should international sanctions be lifted next year. According to hydrocarbon market expert Dr Daniel Yergin, removing sanctions is likely to result in between 400,000 and 600,000 extra barrels per day reaching the market.
ADIPEC is the world’s largest oil and gas conference. It is attended by over 85,000 people from 120 countries, and has 2000 exhibitors.
Mozambique has huge natural gas reserves in the Rovuma Basin: so far 200 trillion cubic feet have been discovered in Area 4 and neighboring Area 1. Analysts have predicted that the country could within a decade become the world’s third largest exporter of LNG after Qatar and Australia.
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