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Why Mozambique Can’t Be an LNG Hub

By Fred Akanni

Almost everyone, it seems, expects Mozambique to become a natural gas hub in East Africa; an LNG hub, if you like.

The reserves are there: more than a hundred trillion cubic feet of gas have been discovered in deepwater Rovuma Basin, in the Indian Ocean, since February 2010. A Floating LNG facility, with capacity for 3MIllion tonnes Per Annum, is under construction. Two larger onshore LNG projects, each at least 12MMTPA to start with, are about to receive financial sanction.

So, yes, Mozambique would become a magnet for regional LNG import and export logistics, and the country could supply the length and breadth of the Southeast African region with natural gas, as Africa industrialises. True?

Not so quickly.

Mozambique’s poor industrial mind-set, for one, is a setback. The shabby neighbourhood which it inhabits, is another minus. With the several trillion cubic feet of gas reserves that have been proven onshore, long before the Rovuma deepwater finds, Mozambique has failed to develop a semblance of industrial capacity. Apart from Sasol-led construction of one power plant 175MW and another new 106MW gas fired plant built entirely by the state , as well as connection of gas to a couple of hundred locations in Mozambique’s commercial cities, there is no linkage of the natural gas resources with the larger economy. Contrast this with Tanzania, its neighbour to the north, with similar sized onshore natural gas resources, which has gradually constructed and expanded a domestic gas market that now edges close to 200Million standard cubic feet per day, one of the top five in Africa.

Mozambican officials lament their smallness; they are shy about what they have. They come across as lacking scale mindedness.

A recent interview with one of the country’s most respected energy leaders illustrates this challenge.

“There’s the potential to become an LNG hub”, Omar Mitha, the personable, charismatic, chairman of the state hydrocarbon company ENH, told The Oil and Gas Year (TOGY), an annual publication detailing hydrocarbon activities in the country. “We are building the oil and gas service centre in Pemba”, he told the publication; “people are interested in the project because it will help logistics. People are bullish on Mozambique”.

But the capacity of its neighbours to lock into Mozambique’s immense resources does not inspire Mr. Mitha.

“We have to bear in mind that the scale is small and bankability is a question from the standpoint of the neighbour’s investment grade”, he explained to TOGY. “If you look at even South Africa, which is a powerhouse in the region, they are not sure about what their power matrix is going to be for the future. If you’re not sure how the market is going to evolve, you can hardly conceive a business model. Our model has to make sense and add value”.

Mozambique is hoping to create a domestic gas market by allocating some of the gas in the Rovuma basin to select companies to build some domestic projects. Shell won the bid to construct a Gas To Liquid Plant, the largest of the three domestic gas utilisation initiatives approved by the authorities

in 2017. It will have a feedstock capacity of around 350Million standard cubic feet per day (MMscf/d). Yara International will develop a fertiliser plant and small power plant, both requiring 78-88 MMscf/d. GL Africa Energy is expected to build a mid-sized 250 MW power plant, to utilise 42MMscf/d.

The feedstock for the Shell-promoted GTL project will be provided from the Area 4 of the Rovuma Basin, where ExxonMobil leads a consortium to develop 15MMTPA LNG plant.

These three projects, in addition to the power plants, effectively inaugurate Mozambique’s domestic gas market.

The question is: can the authorities see a larger variety of gas based projects in the country in the horizon? Do they foresee neighbouring countries taking gas from Mozambique for industrial projects? There’s only one fertiliser plant planned for Mozambique, for now and the medium term, and that plant will only offtake around 60MMscf/d.

Listen to Mitha talk to TOGY: “If you have one fertiliser plant in Mozambique, that could supply all of Southern Africa so it wouldn’t make sense to have another plant in the region. It’s a compelling narrative: Once you have the resources in Mozambique, you are well placed to cater to neighbours. But you need to test that business model. I tend to believe we have to be cautious about what the future holds with regards to neighbouring countries, especially the Southern African Development Community”.

Again, the impression he has given is that the African absorptive capacity is extremely limited.

Which is why Mr. Mitha cuts foreign investors in Mozambique some slack for insisting on export projects.

“The reason most projects in Rovuma are export oriented is because there has been a lot of money spent on exploration. To monetise these resources, you have to sell to premium markets such as Japan and China. They are far away, so you need LNG, not pipelines. It’s costly to take pipelines into Malawi and Zimbabwe, the same with refineries and fertiliser plants.

But this line is the most telling of the entire interview that Mr. Mitha granted TOGY: “We will not be a hub of LNG for the sake of it. It has to make sense. You must sell at a price that is viable, because no one else will deploy an investment if it does not provide an ROI”.

This article was initially published in the April 2019 edition of Africa Oil+Gas Report


Government Bias For the End User Stifles Investment in Nigeria’s Domgas Market

By Akpelu Paul Kelechi

The Nigerian Gas Association is concerned that state intervention in gas pricing in aid of end users is having  unintended negative consequences on other sections of the value chain.  “We feel that the government should not throw interventions at one end of the value chain without looking at the roll back effect”, argues Audrey Joe-Ezigbo, president of the association.

She says that the whole pricing idea is hinged on “some kind of assumption that a thousand cubic feet of gas in the Niger-Delta can be reasonably produced for about $1 and that there is even inherent profit in the form of condensate”, which is sold as crude oil. That thinking, that the Nigerian gas reservoir is largely a wet gas tank from which an investor can retrieve other products apart from dry natural gas (methane), is behind the 2008 domestic gas pricing and supply regulation, which remains the default regulation for gas pricing in the country.

Joe-Ezigbo was reacting to Africa Oil+Gas Report’s question regarding the NGA’s position on a January 2019 gazette on tariffs for natural gas sold to Manufacturers and Textile sectors. That gazette caps the price per thousand cubic feet by gas producers and suppliers at $3.85.  “So the gazette was withdrawn and a second one came up which also has been suspended”, the NGA president explains. “Currently, we are at discussion to see what will make sense for the industry. As we see it as NGA, again I use the word signal, what are we signaling to investors?”

A player in the midstream sector of the gas value chain herself, Joe-Ezigbo became the first female President of the NGA several months ago. She points at government’s push to ensure that all pricing in the domestic market is hinged on export parity; export parity being the LNG export price. “There are many challenges with that; one, in that arrangement, LNG is like the major taker and when you are comparing other LNG hub prices, you are not actually getting like for like if the bulk of the number you are going to divide with is coming from one particular place. In the meantime, the LNG price which is about $2.50, is not the end price, the end price of the product currently is over $5 but there is no gas anywhere at $1.40 which is the gas supply price underpinning the $3.85. Not from NPDC, not from any of the suppliers or producers”.

Joe-Ezigbo also argues against the notion of a fixed transportation cost, “which is also the transportation cost by a government agency”. She says: “At the end of the day, of course there are other costs that go with the marketing and distribution. When that price (for the Textile sector) came, it was clear to us that it was not a sustainable price. However, what we did was have a stakeholders’ meeting where we tried to arrive at a price that the industry can live with so that it would make sense right from the point of supply all the way to the end of the value chain”.

Full details of the conversation with the NGA President is due out in the forthcoming July 2019 edition of Africa Oil+Gas Report, to be distributed at the SPE Nigeria Conference in Lagos. You can also subscribe here.

 


In Moza, Africa’s Biggest FID For Natural Gas Development in History

By Sully Manope, southern Africa correspondent, in Windhoek

US independent Anadarko and the government of Mozambique announced yesterday, June 18, 2019, the Final Investment Decision for what is the biggest single natural gas development project in Africa, ever.

It is the first phase of development of the natural gas reserves in Area 1 of the Rovuma Basin, stored in about 1,600 metres of water off Mozambique. The Liquefied Natural Gas facility with capacity to produce 12.8 Million Tonnes of the product every year (12.8MMTPA), will utilise 2Billion Standard cubic feet of gas a day (2Bscf/d)

No LNG project in Africa ever started this big.

To put it in context. The Nigeria LNG project in Bonny, in the country’s east, started production in 1999, from a plant with capacity less than 4MMTPA. The Algerian LNG, the first on the continent, started from even smaller sized capacity plants.  Angola’s LNG is 5.2MMTPA. Egypt’s largest LNG plant, the one at Idku, has a total size of 7.7MMTPA.

The Mozambique LNG project, as the Anadarko led development is called, will cost $20Billion to build, on a site on the Afungi peninsula, in the country’s district of Palma. This onshore site is where the deep-water gas will be channelled, to be turned into liquefied gas.

Even though it has taken considerable time (close to three years), for Anadarko to secure enough sales agreements to give it comfort to sanction a 12.8MMTPA project,  leading industry ‘bibles’ forecast considerable market for this product in the mid to long term. Global demand is expected to increase from 319MMTPA to 632MMTPA (average) from 2018-2040.

On its part,it has taken the Government of Mozambique 13 years to reach this stage. It launched the 2nd Licensing Round on 15th July 2005. Applications were submitted on  31st January 2006. Anadarko discovered the first commercial sized reservoir of gas in the country’s deep waters in February 2010.


Morocco’s Domestic Gas Market Can Absorb Anchois Field Development

Chariot Oil and Gas has determined that the development of the Anchois Field is technically feasible.

The potential is there “for either a single phase or a staged development to commercially optimise access to different parts of the Moroccan gas market”, the company reports, after a quick look evaluation, adding: “Morocco has a growing energy market with attractive gas prices that underpins a commercially attractive project”.

The Anchois field was discovered 10 years ago by Repsol and it has lain fallow since then. In March 2019, Moroccan authorities awarded Chariot O&G a 75% interest and operatorship of the Lixus Offshore Licence, which hosts the Anchois field. Chariot’s parner on the acreage is the state hydrocarbon company Office National des Hydrocarbures et des Mines (ONHYM), which holds a 25% carried interest.

The Moroccan gas market has considerable headroom to grow. The average price of gas is entirely deregulated and it is about $9.00 per thousand cubic feet (Mcf). This price is based on alternative supply which is imported compressed natural gas or “bottled gas” at $18.00/Mcf. Natural Gas is sold directly to local industrial users (mainly ceramic manufacturers) and local gas demand significantly outstrips supply

Chariot says that options for the development of the Anchois field include a “subsea-to-shore” concept, employing proven industry standard technical solutions and equipment. This concept consists of subsea production wells tied to a subsea manifold, from which a subsea flowline and umbilical connect the field to an onshore Central Processing Facility, where gas is processed and then delivered into the Maghreb-Europe Gas pipeline via an onshore gas flowline.

The company has initiated an Environmental Impact Assessment to facilitate appraisal operations in 2020·   Chariot says it is willing to re-enter the suspended Anchois-1 gas discovery well, “which may be completed as a producer well”.

 

 

 


Ghana Gas Still Doesn’t Pay What It Owes

By Prospectus Mojiddo

Ghana National Gas Company (Ghana Gas) is owing Ghana National Petroleum Corporation close to $1Billion, being cost of raw gas it has received from the state hydrocarbon company without paying the latter.

Between January and June 2018, Ghana Gas sold processed gas with total invoice value of $160,648,513.18. This amount comprised expected revenue from the sale of Lean Gas ($ 137,248,841.58), representing 86% percent, expected revenue from LPG, $19,723,641.34 (12%) and condensates, $3,676,030.26 (2%), according to a report by the Public Interest Accountability Committee PIAC, on the management of Petroleum Revenues in Ghana.

Even though Ghana Gas received $46,342,944.10 as proceeds from gas revenues, it made no payment to Ghana National Petroleum Corporation (GNPC) in respect of gas supplied, for which reason no gas receipts were realised in the Petroleum Holding Fund, PHF.

Ghana Gas explained to the PIAC that it used the realised revenues to cover its operational cost.

In the event, Ghana Gas’ indebtedness to GNPC stood at $45,170,192.14, between January 1 and June 30, 2018, with an outstanding opening balance of $230,315,198.37, bringing the total indebtedness to $275,485,390.51.

Cumulatively, receivables due Ghana Gas as at June 2018 stood at $873,767,914.87 (including interest charges for the period January to June 2018).

PIAC advises that Ghana Gas must discontinue the practice of retaining gas revenues. Receipts from the sale of gas must be applied to defray the cost of raw gas supplied by GNPC, for lodgement in the PHF in accordance with Sections 2 & 3 of the PRMA.

This article was published in the March 2019 edition of the Africa Oil+Gas Report

 

 


Power Crisis: Tariff Escalation Will Plug Leakages from the Nigerian Treasury

By Akpelu Paul Kelechi

The Nigerian treasury is haemorrhaging money because of the unwillingness of government to allow tariff escalation in the power sector.

The government has been pumping money in form of intervention funds. ”We are not allowing the tariff to be escalated as was agreed at the point in time when there was privatization”, says Audrey Joe-Ezigbo, President of the Nigerian Gas Association (NGA).

In November 2013, Nigeria finalised the privatisation of five electricity generation companies and 11 electricity distribution companies, which had been earlier unbundled from the state owned monopoly, the Power Holding Corporation of Nigeria (PHCN). The state however retained control of the transmission company.

Joe-Ezigbo is concerned that the illiquid state of the Nigerian power sector derives largely from its responsibility for the offtake of over 70%-80% of the natural gas supplied into the domestic market. “We have had several government interventions over the years; we have had some 238Billion ($660Million) intervention at some point, we’ve had a 90Billion ($248Million) intervention and more recently, we have had the 701Billion ($1.9Billion) intervention from the Payment Assurance Guarantee which elapsed in December last year”, she reminds Africa Oil+Gas Report in an exclusive interview.

“We currently have an approval in principle for another 600Billion ($1.66Billion) power sector intervention and this is to deal with debts that have accumulated from 2017, 2018 to current year. But, there are still constraints around the pre-2017 debts that have not been dealt with”, Joe-Ezigbo says.

“There is the concern around the tariffing; we are not allowing the tariff to be escalated as was agreed at the point in time when there was privatization. So, the end user is not paying the true cost of power and rather than shift the true cost of power the government is spending billions of naira having all these interventions that otherwise will not be necessary if it was dealt with”.

There is also the challenge of the sanctity of contract, Joe-Ezigbo, who runs Falcon Corporation, a gas pipeline operating company, points out. “So we have for instance, several Gas Sales Agreements (GSAs) and Gas Sale Aggregation Agreements (GSAAs) that six years after they were agreed upon, have actually not been signed!

“People are literarily operating without valid contracts. Now the problem with that also is that when your primary off-taker is a government power plant for instance, you find it difficult to enforce because you cannot actually enforce something you did not sign in the first place. So, it has been a sort of difficult terrain for the operators in that space”.

The full interview is published in the June 2019 edition of the Africa Oil+Gas Report

 


Mozambique Approves the Rovuma LNG Development Plan

  • Plan details proposed design and construction of two liquefied natural gas trains, which will together produce more than 15Million tons of LNG per year
  • Final investment decision expected later this year

The government of Mozambique has approved the development plan for the Rovuma LNG project, which will produce, liquefy and market natural gas from three reservoirs of the Mamba complex located in the Area 4 block in the Rovuma basin, two of which straddle the boundary with neighboring Area 1.

This is the project that will come after the Anadarko led Mozambique LNG project.

While the 12.8MMTPA Mozambique LNG Project will take FID in June 2019, the 15.2MMTPA Rovuma LNG Project is expected to be sanctioned by the 3rd Quarter of the year.

The development plan approval of the Rovuma LNG project “marks another significant step toward a final investment decision later this year,” says Liam Mallon, president of ExxonMobil Upstream Oil & Gas Company. “The Rovuma LNG project will work to build the local workforce through focused recruitment and skills development”, he adds.

Ernesto Elias Max Tonela, Mozambique’s Minister of Mineral Resources and Energy, says: “This is the third development plan approved in this five-year period to enable the sustainable development of the huge natural gas reserves discovered in the Rovuma Basin and represents the Government’s commitment to ensure the implementation of projects that will drive the development of Mozambique.”

“We want Mozambican entrepreneurs and Mozambicans to be the main beneficiaries of the various business opportunities made available by the multinationals, because we believe that these companies should grow with the national businesses and with Mozambique,” Tonela explains.

The marketing effort for the LNG produced from the Rovuma LNG project is jointly led by ENI and ExxonMobil. Sales and purchase agreements for 100% of the LNG capacity for trains 1 and 2, which together will produce more than 15 million tons of LNG per annum, have been submitted to the government of Mozambique for approval.

“The expected production from the Area 4 block will generate substantial benefits for Mozambique and the Area 4 partners,” contends Alessandro Puliti, ENI’s Chief Development, Operations & Technology Officer. “The development plan details our commitment to train, build and employ a local workforce and make gas available in support of Mozambique’s industrialization.”

The Rovuma LNG partners have developed a series of plans to support community development in line with the government’s priorities. During the production phase, the Rovuma LNG project expects to provide up to 17,000 tons of liquefied petroleum gas (LPG) per annum in Mozambique from Area 4 resources, which is currently about 50 percent of the country’s LPG imports, and will dramatically improve access to energy. The Area 4 partners also plan to distribute up to 5,000 LPG burners and cooking stoves in the Afungi area to replace the burning of wood.

Area 4 is operated by Mozambique Rovuma Venture S.p.A. (MRV), an incorporated joint venture owned by ENI, ExxonMobil and CNPC, which holds a 70 percent interest in the Area 4 exploration and production concession contract. Galp, KOGAS and Empresa Nacional de Hidrocarbonetos E.P. each hold a 10 percent interest.

ENI Rovuma Basin will lead construction and operation of upstream facilities on behalf of MRV and ExxonMobil Moçambique Limitada will lead construction and operation of natural gas liquefaction and related facilities.

 


It is Official: Anadarko Takes FID on Moza LNG In June

By Angus Djibouti

The President of Mozambique and the Chairman and CEO Anadarko Petroleum Corporation have announced plans for Mozambique LNG to make an important announcement during a celebratory event on June 18, 2019 in Maputo.

Africa Oil+Gas Report had reported, last February, that the Final Investment Decision for the Anadarko led 12.8Million Tons Per Annum (Two Train) LNG project in the country, would be taken at the end of March 2019.
That date was delayed and the news that broke around Anadarko, in April 2019, centred on its being purchased by either Chevron or Occidental, both American E&P companies like itself.

Now the project is going ahead.

President Filipe Nyusi and Anadarko CEO Al Walker have jointly noted that all issues under negotiation between the Government of Mozambique and Anadarko have been satisfactorily resolved.

“We expect June 18 will become a historic day in Mozambique as we announce that one of the most important and transformational projects in our country’s history is ready to advance to the next stage,” says President Nyusi. “We recognize Anadarko’s continued commitment to moving this project forward to becoming a reality.”

“With commitments for financing in place, off-take secured, and all other issues under negotiation successfully addressed, we are excited to take the next step with the expected announcement of a Final Investment Decision (FID) for the Mozambique LNG project on June 18,” said Walker.

“Mozambique LNG is among the most significant projects that our company or any other has undertaken, given the scale of the project, size of the resource, and the potential long-term transformational benefits it represents for Mozambique. We are grateful for the continued support of the people and government of Mozambique, our co-venturers, and the thousands of men and women working in the Cabo Delgado region to develop this exciting project. We look forward to celebrating the official sanctioning of Mozambique LNG on June 18.”


‘Job Explosion’ Expected at Train 7, ‘Banked on Nigerian Content Plan’

The construction stage of the Train 7 of the Nigerian Liquefied Natural Gas is anticipated to provide over 10,000 jobs  and “stimulate capacity building of local industries along the LNG value chain”, according to Tony Attah, CEO NLNG Ltd.

Simbi Wabote, Executive Secretary National Content Development Monitoring Board (NCDMB), said “the expected job explosion from Train 7 is banked on the Nigerian Content Plan, which provides for 100% engineering of all non-cryogenic areas in-country”, adding that the “total in-country engineering man hours is set at 55%, which exceeds the minimum level stipulated in the NOGICD Act, in line with the NCDMB’s resolve to push beyond the boundary of limitations”

Attah and Wabote spoke during the signing off of the approved plan for Nigeria Content (NC) for NLNG’s Train 7 project which will ensure the delivery of value and benefits to the Nigerian economy.

The project, expected to receive financial sanction before the end of 2019,  will add 8 Million Tonnnes Per Annum(8MMTPA)  of Liquefied Natural Gas to the current capacity of 22MMTPA at the Bonny Plant in the east of the country.

NLNG is owned by four Shareholders, namely, the Federal Government of Nigeria, represented by Nigerian National Petroleum Corporation (NNPC), (49%), Shell Gas B.V.  (25.6%), TOTAL Gaz Electricite Holdings France (15%), and ENI International N.A. N. V. S.àr. l (10.4%).

 

 


Tanzania: State Energy Companies Get Better At Paying For Natural Gas

By Njoroge Karoo, in Nairobi

Private producers of natural gas for Tanzania’s domestic market are applauding the state energy firms for timeous payment of their receivables.

Canada headquartered Wentworth Resources, a member of the consortium producing Mnazi Bay Concession, reports that “Monthly payments in January and February 2019 for gas sales generated from the concession in aggregate, $3.2 million net to Wentworth, have been received” (as of March 6, 2019.

Gas production from the Mnazi Bay concession reaches 80Million standard cubic feet of gas per day at peak and is supplied to state owned power plants and industrial users like Dangote Cement Plant.

“These payments are post allocation of the Tanzania Petroleum Development Corporation (“TPDC”) receivable, adjusted to reflect the Ziwani-1 exploration well and associated 3D seismic costs”.

Wentworth says that “payments were received from both TPDC and Tanzania Electric Supply Company Limited (TANESCO) and due arrears from both off-takers remain at three months, having steadily reduced during the course of 2018”.

As a result of the continued demand and sustainable payment landscape, the Company continues to meet and pay-down its debt commitments from free cash-flow in 2019 and expects to be debt free with the final payment on its single outstanding loan facility falling due in January 2020.

 

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