Slump in LNG prices delays production at Mozambique gas field

lng-anadarko_eni_mozambique

NEW DELHI: Production at the Mozambique gas field, in which Indian state firms have 30% interest, will get delayed by about three years with the first output likely only in 2021, as plunging gas prices cast a shadow on investment decisions and make buyers scarce. “It’s aclassic chicken and egg situation,” said a source with direct knowledge of the matter.

“Gas purchase agreements can’t be finalised quickly as the final investment decision (FID) hasn’t been made, and an FID can’t be made because there is no visibility on who will buy the gas.”

At the heart of this complex situation is the massive three-fourths drop in liquefied natural gas (LNG) prices in two years. A supply glut has brought down spot LNG prices to about $4.25 per unit, upending the market rules and leaving buyers and sellers with little pricing certainty with which to strike long-term deals. Many of those caught in long-term expensive deals prefer spot cargoes these days.

The Mozambique project, however, is not unique in this as many other projects globally face the same stress brought on by the price crash. To be sure, the Mozambique project has entered into preliminary agreements with several buyers for its natural gas. But those agreements haven’t entered the final, binding stage since, according to a source, buyers first want to see investment commitment from the promoters of the Mozambique field.

Another source said the investors in the project are hesitant in committing to long-term deals at current prices and are therefore delaying the project. The FID for the project is now expected only by the end of 2016, according to the source. The output would start only in 2021, he said. The first LNG from the project was expected by 2018, Oil and Natural Gas Corporation (ONGC) had said while announcing its first stake buy in the project in June 2013.
ONGC and Oil IndiaBSE 0.95 % had jointly agreed to purchase 10% participating interest from VideoconBSE -0.10 % Mauritius Energy Ltd for $2,475 million in Rovuma Area-1block in Mozambique with an estimated recoverable reserves of 35 to 65 trillion cubic feet. Just two months later, ONGC agreed to buy additional 10% stake from Anadarko for $2,640 million. Bharat Petroleum CorporationBSE 0.08 % had entered the project in 2008 with a 10% stake. Anadarko Petroleum Corporation, with its 26.5% interest, is the operator of the block. According to the source quoted above, $5-6 billion has already been invested in the Mozambique project and another $25 billion is further needed. State-run firms that have invested in the project did not respond to ET’s queries.

source: By Sanjeev Choudhary
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