Delegates and expert speakers were in upbeat mood this week at the ENH-CWC hosted Fourth Annual Maputo Gas Summit, reflecting the new found momentum of a Mozambique gas sector proudly displaying Africa’s only confirmed gas FID (final investment decision) in 2017 to date, the Coral South Floating Natural Gas project led by ENI. Signed in June of this year, as the first FLNG installation in Africa, and only the third anywhere in the world, the project is being launched against a background of weaker global LNG prices, Mozambique’s sovereign debt default and potential strong outside competition for buyers in the time horizon during which Coral South’s gas will come to market.
Success against this background represents a real achievement and is a testament to the value of the asset which Mozambique’s state energy agency ENH, lead operator ENI and Rovuma Area 4 co-owners CNPC, Galp and Kogas set out to develop. They are now joined in the venture by ExxonMobil, who are purchasing a 50% stake in ENI East Africa from their parent company. Coral South is estimated to contain a reserve of 16 trillion cubic feet (tcf) and, when up and running, to achieve production of 3.4MTPA (million tons per annum).
Turning to onshore activities, bringing the necessary Mozambican resources into the mix in terms of infrastructure, local content, bank credit and adequate road and air links were highlighted in the keynote speech on the conference’s final day, given by Minister of Transport and Communications H. E. Carlos Mesquita. And Deputy Minister of Energy and Mineral Resources, Augusto Sousa Fernando, delivering his opening day remarks, urged Mozambican firms and institutions to gear up to supply the multitude of services that the future industry will demand, as well as making an urgent call for the qualifications and expertise which will so badly be needed and which the country still lacks.
Quite apart from the technical achievements involved, the financing of Coral South was something of a masterpiece in itself. And on the second day of the Gas Summit, one of the liveliest panel discussions focused exclusively on the financing of mega projects in the LNG sector, and how to ensure that the development of the industry does not fail due to inability to raise and deploy the necessary funding. Melanie Lovatt of Poten & Partners emphasized the critical role of government and multilateral guarantees in securing funding, which individual banks often might not commit without such formal underwriting.
Against this backdrop, the Coral South achievement represents something of a blueprint for future consortia to follow. With a 60% project-financed component the financing underwritten by 5 Export Credit Agencies and subscribed to by 15 banks, this first ever FLNG project financing was expeditiously put together, doubtless sped along by BP’s firm commitment to buy Coral South field’s output for the next 20 years.
The Summit financing strategy panel agreed that Export Credit Agency or World Bank, and African Development Bank etc guarantees would be key to securing the financing of the new FLNG and land based LNG projects which the market badly needs, from 2020 onward. In this context, while recognizing the current healthy supply situation of the global gas market, Ms. Lovatt warned against failure to bring new projects on stream in time for the 2020-2023 window, when supplies are forecast to be tight. This is the window, at the end of which, Mozambique still has a chance of bringing product to market.
Paul Eardy Taylor, Head of Oil and Gas for Southern Africa at Standard Bank however recalled how the gas sector has to date benefited much less than e.g. electric power from the supportive presence of the Development Finance Institutions (DFIs) and stressed that a more active DFI presence will be needed in Mozambique’s gas sector to achieve the necessary capacity building.
However, as discussed in a Club of Mozambique article earlier this week ‘’…Asia as the Battleground’’, the world LNG market is in a state of rapid flux, a reality underlined from the podium by Katan Hirachand, MD for Energy Project Finance at Société Générale. SocGen’s Hirachand described what he saw as the ‘New Model’ of the Global LNG market, one where export and trading no longer follow the long term-contract model of 10-year fixed price and delivery schedules, but rather a fluid, more tradable LNG market where LNG cargos can find their ultimate buyers once already at sea, and original buyers may resell their commitments, literally in mid stream. Today, in this respect the market is beginning to resemble the crude oil model, with less than 35% of LNG globally sold according to 5 or 10 year contracts as in the past.
In addition to their well-deserved Mozambique Gas Summit awards, there is longer term good news for weary industry delegates heading homewards from this week’s sessions. Cost advantages, strategic position in relation to Asia and deep, durable reserves provide the incentives in a tough market still fraught with uncertainties as well as elusive rewards.