Mozambique enters the LNG game

Flag of Mozambique
Source: DollarPhotoClub

With natural gas fetching drastically different prices in the US, Europe and Asia, and with mounting uncertainty around Russian gas exports, the world is rushing to embrace LNG technology. Currently, more than 25 countries are planning to build LNG projects within the next five years. Yet with a plentiful supply of natural gas and capital upstream costs the lowest in the world, Mozambique emerges as an unlikely frontrunner in the LNG game.

“East Africa has emerged as an important hydrocarbon province in the wake of enormous natural gas discoveries made in Mozambique and Tanzania since 2010,” Royal Bank of Canada Capital Markets said in a new report.

“This abundant resource picture has piqued the interest of Asian LNG buyers who are seeking to diversify their portfolios. Tanzania does not envision LNG exports this decade – but Mozambique could be an LNG exporter by late 2018-19,” it added.

Mozambique’s LNG would be an attractive option, given that the country has the lowest capital investment costs in the world. An offshore, greenfield project in Mozambique would cost between USD 1,600 and USD 2,100 per ton per annum, compared to USD 2,100-USD 2,200 on the U.S. Gulf Coast and USD 2,100-USD 2,600 on the Canadian West Coast, according to the report.

On the other hand, as the report points out, “Mozambique’s LNG export thrust will need to contend with its remote location, limited infrastructure, and reliance on imports of equipment and skilled labor.” Mozambique is 7,000 miles away from Japan, the world’s largest LNG importer. In comparison, projects on the Canadian West Coast are 3,930 miles from Japan and Western Australia projects are 3,650 miles away.

As a result, Mozambique’s LNG exports are likely to be cheaper than similar projects in Western Australia, but comparable to those in Western Canada and Eastern Australia.

Mozambique’s gas reserves were described by Sanford Bernstein, a sell-side research house, as “the largest and most regular source of exploration success over the last few years and recoverable resources”.

Offshore Mozambique’s northeastern coast, in the Rovuma Basin, a discovery of around 150-200 trillion cubic feet of recoverable gas reserves have brought major industry players like Italy’s Eni SA and the United States’ Anadarko Petroleum Corporation.

Last year, India’s Oil & Natural Gas Corporation (ONGC) teamed up with Oil India to buy a 10% stake in Anadarko’s Mozambique assets for USD 2.5 billion. ONGC then acquired an additional a 10% stake in the basin for USD 2.6 billion.

But the biggest deal was by China National Petroleum Corporation, which bought a USD 4.2 billion, 20% stake in Eni’s East African play.

Mozambique is keen to capitalise on this heightened interest. Current legislative changes – still awaiting approval from the parliament – aim to provide an improved legal framework encompassing oil and gas investment, including LNG.

“In cooperation with the Mozambique government, Eni and Anadarko plan to develop the USD 50 billion onshore Mozambique North LNG project,” RBC said.

“The companies are progressing discussions with potential LNG buyers in the Asia‐Pacific region, are coordinating upstream gas development in their respective offshore blocks, and are working with the Mozambique government to accelerate project approvals.”

The first two trains of the project could cost anywhere between USD 8 billion and 10 billion; the companies’ long-term plans include development of 10 trains with total capacity of 50 million tons per annum by 2030, RBC estimates.

Bernstein expects Mozambique to take a little longer to reach that figure.

“Our gas supply model, we assume first LNG from 2020, given the complications inherent in constructing export facilities where there is currently limited gas infrastructure,” said Clint Oswald, analyst with Bernstein.

“Furthermore, it will take time for such a large volume of gas to be fully developed. We anticipate 10x 5MTA trains being constructed in total, but it being 2033 before plateau volumes are reached.”

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