Breaking News! ENI ‘nears Samsung FLNG order’, likely destination to be Mozambique

The Italian hydrocarbon company ENI is close to awarding the contract for the construction of the floating liquefied natural gas (FLNG) vessel which will supply the world’s markets with gas from Offshore Area-4 in the Rovuma Basin, off the northern coast of Mozambique. ENI is the operator of Offshore Area-4, which is estimated to contain 85 trillion cubic feet (tcf) of gas. According to the South Korean news agency Yonhap, a consortium composed of the French company Technip, JGC (formerly known as the Japan Gasoline Company) and South Korea’s Samsung Heavy Industries is likely to get the contract which is valued at US$5.4-billion.

Yonhap reported that Samsung Heavy Industries has almost secured a US$2.5-billion deal for its part in the construction of the plant. It quoted an unnamed source as saying that: “it’s safe to say that Samsung Heavy has virtually won the contract. It will be signed around October”. “We expect the order in the second half of this year”, a Samsung Heavy Industries spokesperson said on Thursday 21 July. The FLNG vessel will be located over the Coral gas field and liquefy 3.4 million tons of natural gas per annum. It is estimated that Coral holds 16 tcf of gas, enough to supply a further FLNG if the market conditions are suitable.

In February, the Mozambique government gave the go-ahead for the project, and the Environmental Licence has already been awarded. It now looks certain that ENI will make its final investment decision (FID) on the Coral field later this year. ENI has also discovered gas in the Mamba field which straddles Area-4 and neighbouring Area-1 (operated by the US company Anadarko). In December, the two companies entered into a unitisation agreement for the use of this gas, which will be processed onshore, on the Afungi Peninsula in Palma district (Cabo Delgado Province). ENI is expected to make its FID on its Mamba field next year.

However, the news agency Bloomberg reported at the end of June that the US hydrocarbon giant ExxonMobil and Qatar Petroleum are looking at acquiring a stake in the natural gas fields in the Rovuma. According to rumours, they are looking to buy a major stake in both Area-1 and Area-4. Nevertheless, it is thought that ENI will keep its stake in Coral.

A deal such as this would offer a tremendous boost to the Mozambique government, which is in financial difficulties due to a fall in commodity prices, large sovereign debts, and a severe drought. Bloomberg quoted a source as stating that acquiring a share of Anadarko’s Area-1 could generate capital gains tax of approximately US$1.3-billion for the government. Purchasing a stake in ENI’s Area-4 would raise further revenue.

Previously, some commentators had stated that if Exxon became the operator in the two offshore areas, there would be additional benefits from reduced costs and more control over the entire production. In addition, Exxon has an AA+ credit rating and easy access to the huge amount of credit needed to develop the projects. However, others have argued that such a takeover would involve an inevitable delay the both LNG projects. ENI controls a 50% indirect interest in Offshore Area-4 owned through ENI-East Africa, which holds 70% of the concession. The other 20% held via ENI-East Africa belongs to the Chinese company CNPC. The other three partners, with 10% each, are KOGAS of Korea, Galp Energia of Portugal, and Mozambique’s National Hydrocarbon Company, ENH.

ENI’s Development, Operations and Technology Officer, Roberto Casula, said in March that the three consortia bidding to supply the Coral FLNG vessel managed to increase its capacity from 2.5 million tons per annum to 3.4 million tpa, while controlling costs. He said the cost of the FLNG vessel stands at €1.3-billion (US$1.44-billion, at current exchange rates) per million tpa – equivalent to just shy of US$5-billion.

ENI is due to build offshore processing units while Anadarko is planning a vast onshore development but the projects have faced uncertainty and investors are keenly awaiting long-delayed FIDs. Samsung’s announcement on Thursday opens the door for ENI to make its final call this year, which would make Anadarko’s development more likely to proceed, industry sources said. The projects could unlock as much as US$30-billion of investment.

Source: Upstream/Yonhap/Agencia de Informacao de Moçambique/Reuters
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