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Mozambique Oil & Gas: Why do Companies Need to Secure Sales and Purchase Agreements (SPAs) in order to reach FID
Due to the significant investments associated with the development of an offshore natural gas field and construction of an onshore LNG facility, Mozambique LNG plans to secure long-term Sales and Purchase Agreements (SPAs) with LNG buyers.
What is an SPA (Sales & Purchase Agreement)
Mozambique’s natural gas resources are ideally suited for a large-scale LNG development. Due to the significant investments associated with the development of an offshore natural gas field and construction of an onshore LNG facility, Mozambique LNG plans to secure long-term SPAs with LNG buyers and ensure LNG shipping agreements are in place to economically support the project.
A SPA is the contractual commitment between a seller and a buyer which specifies terms such as volume commitment, pricing, delivery point and annual delivery profile as well as terms and conditions required for a long-term contract.
The project aims to secure 9 to 11 MTPA of long-term SPAs that are built upon the foundations of the seller’s gas reserves and the long-term creditworthiness of buyers necessary to secure project funding. Typical buyers of LNG include major end-users (gas utilities, power companies and large industrial users).
Mozambique will reserve some production capacity to sell on a spot and/or short-term basis as well as for other projects such as Gas to liquids and fertilizer.
Recently Anadarko Petroleum Corporation announced Mozambique LNG1 Company Pte. Ltd., the jointly owned sales entity of the Mozambique Area 1 co-venturers, has entered into a long-term LNG Sale and Purchase Agreement (SPA) with Électricité de France, S.A., (EDF). The off-take agreement calls for the supply of 1.2 million tonnes per annum (MTPA) for a term of 15 years.
“EDF is one of the world’s largest electric utilities, and 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 Executive Vice President, International & Deepwater Operations and Project Management.
“Mozambique LNG is unique in its ability to supply LNG to a variety of geographic locations to serve its customers, and this SPA gives us flexible access to Europe, which is one of our key strategic markets. The EDF sale is included in the portfolio of sales of more than 5 MTPA for which we have agreed key terms, and we continue to advance additional off-take arrangements. We anticipate the future development of Mozambique LNG will open new opportunities for the country and serve as a growth platform for its ongoing development.”
Andrew Seck, vice president of Anadarko’s LNG Marketing and Shipping division also said
“We have multiple ongoing negotiations with a variety of buyers … everyone from Chinese to Indians to Japanese,”
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 the 8.5 mtpa target needed to trigger its final investment decision (FID) on the project, Seck said on the sidelines of an LNG conference in Singapore.
To be noted that the initial two LNG trains projected by Anadarko have the capacity to each produce 6 mtpa, thus the necessity to assure at least 9 to 11 mpta in order to progress to FID.
Deals so far include Anadarko’s 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.
US oil giant Anadarko is also in negotiations with nine Indian companies to sell the gas it will operate in Mozambique, Bloomberg have reported, citing unidentified but knowledgeable sources.
The companies are Indian Oil, GAIL India and Bharat Petroleum, and are part of the US oil company’s strategy to secure natural gas sales contracts before moving forward with the Final Investment Decision (FID) in Mozambique for gas exploration natural liquid.
These SPAs will guarantee financing for the huge project and take them one step closer to FID, which could still happen in 2018, but most probably will be Q1 2019.