Latest IMF report says Mozambique could export more than four times what was previously assumed – though low oil prices mean the projects could face further delays in reaching FID
- IMF ups estimates for Mozambique’s LNG export capacity from 20 mtpa to 89 mtpa by 2028
- Gas reserves support this growth, LNG demand projections don’t
- Mozambique LNG can work in $40/bbl oil, but not at $30/bbl
The International Monetary Fund (IMF) has drastically revised its estimates of Mozambique’s future LNG capacity from around 20 million tonnes per annum (mtpa) to 89 mtpa, a total that would make the country the world’s third largest LNG producer by 2028, behind Australia and the United States.
In its latest staff report, published in January, the IMF said it had updated its assumptions “in line with information from the private developers”. The Fund now expects 13 onshore LNG trains and four floating trains (FLNG) to be built, versus their previous assumption of just 4 onshore trains. However there is a real risk construction of the first LNG trains could be significantly delayed if gas prices stay low and ongoing negotiations between the operators and the government are not concluded before the end of 2016, the Fund noted.
Assuming a final investment decision (FID) by mid-2016, the report expects the first onshore train and first FLNG train will start production in 2021, with the 13th train coming online in 2028.
Total investment from 2016 is projected at $110 billion, but the sector’s contribution to GDP is expected to be small during the construction period due to high level of imports.
Fiscal revenues from the project are only expected to be significant by the mid- 2020s and the current account balance would turn into surplus only in 2025, due to cost recovery of investment.
When annual LNG output reaches 89 million tons in 2028, it will then constitute more than 50% of nominal GDP, the report estimates.
But is there demand?
While Anadarko’s Area 1 and Eni’s Area 4, offshore Mozambique, hold more than enough gas to feed 90 mtpa of LNG liquefaction capacity, there are doubts whether there is the demand to support these expansions.
The economic slowdown in China, nuclear restarts in Japan and cheap coal means the outlook for LNG demand in Asia, the target market for Mozambique LNG, is sluggish. Demand for LNG fell by 1% in China in 2015, following years of double-digit growth, according to consultancy Wood Mackenzie. Demand in Japan fell by 4% and in South Korea by 11%. The outlook for the next few years looks just was weak.
Japanese utilities have announced plans to build around 10 GW of new coal-fired power stations to cut reliance on LNG. The government has also committed to bringing nuclear reactors back online, with nuclear expected to account for more than 25% of the country’s energy mix by 2030. However, there is still widespread public opposition to nuclear, which could delay restarts.
South Korea has 16.5 GW of new coal-fired power capacity under construction. In addition, 5.6 GW of new nuclear capacity is expected to come online over the next five years, which will eat into LNG consumption
In China, LNG imports will have to compete against new pipeline imports and rising domestic gas production.
Against this sluggish growth, global LNG production capacity increased by 4 mt in 2015 to 250 mtpa. This year an additional 42.3 mtpa to the capacity will go into operation worldwide, if all projects start up as planned.
In addition FID is slated on 92.5 mtpa of capacity globally, including Anadarko’s 12 mtpa Mozambique LNG project and Eni’s 2.5 mtpa FLNG.
Given the low oil prices and the number of competing export projects proposed in Australia and the US, it will be tough for developers in Mozambique to secure FID on these current developments, let alone further project expansions within the next five years.
$40/bbl plus and the project will work
With the oil price in the low $30s, and dipping to $28 yesterday, the likelihood is that most LNG projects planning to take FID this year will be delayed.
Zitamar News understands that while FID on Anadarko’s Mozambique LNG project will have to be postponed at today’s prices, if the price of oil goes above $40/bbl and stays there the project could still reach FID in the second half of this year.
While there are still outstanding negotiations with the Mozambique government, Zitamar understands most of these are near conclusion could be swiftly resolved if the oil price signals are right.
Buyers from Malaysia, Indonesia, Thailand, Japan, China, Abu Dhabi and Brazil have expressed interested in the Mozambique LNG. Zitamar understands two buyers for the project are close to signing binding sales and purchase agreements on LNG offtake, and two or three others are looking at moving forward to binding deals.
However, the sharp drop in oil prices means the free cash flow for the six companies looking to invest equity in the 12 mtpa plant has shrunk dramatically. Anadarko’s market capitalisation now stands at $16 billion, while its flagship LNG project is estimated to cost in excess of $25 billion.
Sustained low prices and high project costs may mean the US independent is increasingly vulnerable to a takeover bid. There are fresh rumours in Maputo that ExxonMobil is looking at a takeover of the company. With Exxon at the helm, it may be easier to push the project over the finish line, even if prices stay low.
Anadarko holds a 26.5% in Offshore Area 1, Mitsui holds 20%, Thailand’s PTTEP holds 8.5%, India’s state-owned Oil India Limited holds 4%, ONGC Videsh holds 16%, Bharat PetroResources holds 10% and Mozambique’s national oil company, ENH, holds 15%.
