Mozambique Oil & Gas: As Anadarko agrees Rovuma Area 1 LNG sale, banks discuss finance terms

Anadarko--Mozambique
The field was expected to start production by 2019. Indian companies have made an investment of .5 billion in the African country.

(Reuters) – Anadarko Petroleum’s plan to export liquefied natural gas (LNG) from Mozambique moved a step closer to completion on Tuesday after it agreed a 15-year LNG sales and purchase agreement (SPA) with Electricite de France.

France’s state-controlled utility will take 1.2 million tonnes of LNG annually from the Mozambique Area 1 marketing venture led by Anadarko and consisting of Japanese trader Mitsui, India’s ONGC Videsh and Thailand’s PTT, among others.

In all Anadarko has agreed commercial terms including volume and price for 5.1 million tonnes per annum (mtpa) of LNG off-take deals from Mozambique, closing in on its 8.1 mtpa target needed to trigger a final investment decision (FID), said company spokeswoman Helen Wells.

The Texas-based energy company plans to build a plant estimated to cost around $15 billion and start exporting LNG drawn from vast finds in Mozambique’s offshore Area 1 block from 2022 or 2023.

Deals so far include Anadarko’s first binding SPA with EDF as well as an earlier SPA with Thailand’s state-run PTT that is still undergoing government approvals. There is also a preliminary deal with Japanese utility Tohoku Electric.

“Additionally, we are in advanced negotiations with a variety of buyers to meet our FID target,” Wells said.

The choice of European customer diversifies Anadarko’s Asia-weighted supply offering and could see east African LNG flowing into the region’s terminals as declining indigenous gas production makes Europe more reliant on imports, especially Russian piped gas.

“Reaching this SPA continues to validate Mozambique LNG’s position as a competitive long-term LNG supplier and as one of the world’s leading greenfield projects,” said Mitch Ingram, Anadarko’s executive vice president of International and Deepwater Operations and Project Management.

LNG project developers across the board have struggled to find the long-term buyers needed before banks and export credit agencies could commit financing for new plants.

Low oil prices, surging global LNG output and buyer’s demands for flexibility, shorter contract terms and competitive pricing have challenged the profitability of many projects and delayed investments in new ones.

Anadarko’s SPAs hint at a potential thaw in buyer-seller relations and a chance at becoming the first major East African LNG project to reach FID just as rising demand lifts prices and encourages investments in new supply.

The tug-of-war between buyers and sellers has unsettled lenders. A typical financing model asked buyers to pay for a plant’s entire output over 25-years, thereby guaranteeing returns on loans.

Buyers’ growing rejection of this model has led to calls for shorter terms, smaller volumes and flexibility to adjust or divert supply as circumstances change, making it harder for banks to commit funds in light of new project risks.

“With regards to our project financing efforts, lenders are keenly engaged and have indicated a willingness to support the initial project with the necessary levels of project finance commitments,” Wells said. “We are actively negotiating the terms and conditions of the financing.” (source: Reuters, Dailymail; Reporting by Oleg Vukmanovic)

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