Mozambique Oil & Gas: Eni gets the Green Light for its Coral FLNG project

Mozambique’s Council of Ministers approved the plan of development for Eni’s floating LNG project on Tuesday, 23 February, paving the way for to company to take a final investment decision (FID) later this year, according to a report in Natural Gas Daily (NGD) as quoted by Zitamar news portal.

Eni and its consortium partners in Offshore Area 4 are now waiting for confirmation in writing on exactly what the government has sanctioned, according to the report. They are proposing a floating liquefaction plant offshore northern Cabo Delgado, which will produce 2.5-3 million tonnes per annum of liquefied natural gas, which will be sold to UK oil major, BP.

The government approval is a result of more than a year of tough negotiations with state petroleum regulator INP. Eni initially submitted the plan of development (POD) for the Coral project in December 2014, but there were several key challenges to the floating model that the already overstretched regulator needed to negotiate – chief among them the fact that the offshore facility will not supply gas to the domestic market, NGD reported

An Eni delegation led by chief executive Claudio Descalzi flew to Maputo last week to speak with President Filipe Nyusi to wrap up negotiations. As part of a sweetener to the final deal, Eni and its partners offered an improved local content and training plan to the government.

Initially INP was seeking up to 25% of the gas from Eni’s Coral field for the domestic market, but the high cost and environmental impact of building a pipeline to shore meant this option was ruled out.

Instead, Eni and its Area 4 partners will offer gas condensates – a by-product of the liquefaction process – to the government at a low cost, according to NGD.  As part of the deal, Eni had to put forward plans for how the condensate – which is valued at roughly 97% of the price of Brent – can be used to encourage downstream industrialisation in Mozambique,a source in Maputo told NGD.

FID this year…

The approval of the POD means Eni is in a position to move forward with the financing of the $8-9 billion project later this year.

However at current oil prices, it is difficult to make the sums add up. According to some estimates the project may only be economic if the oil price, now in the low $30s, rises above $80 per barrel.

Eni itself, which still holds a 50% stake in Area 4, is still looking to sell up to half of its interest in the licence. The other shareholders are China National Petroleum Corp. with 20%, Korea’s Kogas with 10%, Portuguese firm Galp Energia with 10%, and Mozambique’s state oil company ENH, which also has 10%.

While the bulk of the financing for Coral FLNG will come from export credit agencies in South Korea, China and Italy, the Italian major presented an overview of the project to commercial banks in London in October. NGD said it understands that while banks are interested in lending, they are far from starting serious negotiations.

The Area 4 partners are likely to go back to the banks to start discussions in H2 2016, although some lenders have suggested 2017 is more likely.

The Area 4 consortium has yet to select an EPC contractor for Coral FLNG, although Technip, along with partners Samsung Heavy Industries and JGC, is still  the lead bidder on the project. NGD reported that the partners may wait and ride out the low oil price wave a little longer, to squeeze the bidders and further reduce costs – or to shift more of the project’s technical risk on to contractors.(source: Interfax Global Energy)