On 23 November 2022, the President of Mozambique, Filipe Jacinto Nyusi, visited and inaugurated the Coral-Sul Floating Liquefied Natural Gas FLNG facility. The event was attended by Carlos Zacarias, the country’s Minister of Mineral Resources and Energy and other government representatives. ENI’s delegation at the commissioning was led by Guido Brusco, Chief Operating Officer Natural Resources. The event took place after the shipment of the first LNG cargo on 13 November from Coral Sul FLNG.
The inauguration of ENI operated Coral Sul FLNG project in Area 4 acreage offshore Mozambique deserves special attention. This focus is due at a time when the two of the country’s most highly touted LNG projects—Rovuma and Mozambique LNG– continue to be on security hold.
While LNG markets throughout 2022 and most likely in 2023 are scrambling to meet European and global gas demands, there has been radio silence on two of Africa’s most touted LNG projects located in Mozambique: Rovuma owned by a consortium consisting of ExxonMobil, ENI, China National Petroleum Company, Galp, Kogas and ENH; and Mozambique LNG owned by TOTALEnergies, Mitsui Group, ENH, ONGC, Bharat Petroleum, PTTEP, and Oil India.
Because of the security situation in the north of Cabo Delgado province, both projects have been at a standstill since 2021. In February 2023 TOTALEnergies sent an independent mission to Mozambique to evaluate the security status. The key question: will both TOTALEnergies and ExxonMobil resume their potential projects in the short-term?
Security clearance aside, a number of hurdles remain.
The TOTALEnergies project took Final Investment Decision in 2019. The ExxonMobil led project withheld its FID and has not taken that decision. Even if TOTAL returns to the project in 2023-2024 the earliest delivery of LNG would be 2027-2028, based on past project planning scenarios. We have no idea when ExxonMobil will take FID. What we know is that the LNG global marketplace is shifting and could provide the Mozambique project planners some additional headaches.
LNG’s Present Situation
In its recent Global LNG Outlook 20230-2027, the Institute for Energy Economics and Financial Analysis (IEEFA) provides a somewhat sobering picture for new LNG projects. The institute “expects that sustained high global LNG prices; weak LNG demand growth and elevated price sensitivity in Asia; declines in gas consumption in Europe; and a multi-year string of global capital investments in cost-competitive energy alternatives will undermine global LNG demand growth over the next several years.”
According to IEEFA the global demand for LNG is slowing:
Europe, although maintaining a high degree of importing LNG is also increasing energy efficiency measures and wind and solar projects have become commonplace;
Japan and Korea, historically dependable LNG importers, are increasingly turning to nuclear, and renewables;
China decreased its LNG imports by 20% in 2022 and is turning to pipeline gas supplied by Russia as well as domestic gas supplies;
South Asia, including India, Pakistan, and Bangladesh slashed purchases by 16% in 2022 and suppliers often defaulted on contracts to obtain higher prices elsewhere.
“After several years of weak supply growth, IEEFA anticipates that the global LNG market will see a tidal wave of new projects come online starting in mid-2025. The wave will likely crest in 2026, with the addition of 64Million metric tonnes of annual (64MMTPA) liquefaction capacity—the most in the history of the global LNG industry. The supply additions will boost global liquefaction capacity by roughly 13% in a single year. Liquefaction projects targeting in-service after 2026 may be entering a much smaller demand pool than bullish market forecasts anticipate. As new supply floods the market, today’s tight markets may give way to a supply glut, with lower-than-anticipated prices, smaller netbacks, tighter margins, and lower profits for LNG exporters.”
According to IEEFA’s forecast in 2023 only 5.8MMTPA of liquefaction production will be developed, and in 2024 9.1MMTPA. Total LNG production capacity is currently 456MMTPA.
The turning point will be 2025.
“IEEFA anticipates that roughly 17MMTPA of liquefaction projects are likely to come online around the world in 2025—more than in 2023 and 2024 combined. New capacity additions will crest in 2026, with an estimated 64MMTPA of capacity coming online in a single year, and continue into 2027, when 37MMTPA of new capacity is expected to begin operating”.…
Much of the new production will come from Qatar, USA and Australia. If 2026 and 2027 will see a sharp upturn in LNG liquefaction production, how will this affect Mozambique’s two LNG projects which could potentially add 38.1MMTPA when fully functioning? Long term delays can only threaten project viability. And not proceeding sooner rather than later increases the chances of these projects being listed as stranded assets.
A more immediate threat is that of ENI’s Coral South project already in operation. BP has contracted the entire output of Coral Sul for 20 years, having signed a free on board (FOB) contract with the project partners. In July 2022, it was reported that ENI was considering the possibility of deploying a second floating liquefied natural gas vessel in Mozambique. What does this mean for Rovuma and Mozambique LNG?
The Players and their Strategies
ENI, ExxonMobil and TOTALEnergies have varying strategies. So, how they will potentially address their Mozambique LNG projects?
A key ENI strategy is developing a series of joint-ventures to ensure that ENI can achieve maximum leverage for its current oil and gas assets and at the same pursuing new strategies as part of its energy transition plan. A key example is Azule Energy, Angola, a 50-50 joint venture between ENI and BP formed in 2022 to include both companies’ upstream assets, LNG and solar business. Azule Energy is now Angola’s largest independent equity producer of oil and gas, holding 2Billion barrels equivalent of net resources and growing to about 250,000 barrels equivalent per day (BOEPD) of equity oil and gas production over the next 5 years. It holds stakes in 16 licences (of which 6 are exploration blocks) and a participation in Angola LNG JV. The company also participates in the New Gas Consortium(NGC), the first non-associated gas project in the country.
TOTALEnergies is currently testing the waters: in February 2023 Patrick Pouyanné, Chairman and CEO of TOTALEnergies, visited the Cabo Delgado province of Mozambique to review the security and humanitarian situation and evaluate the actions taken by Mozambique LNG.
ExxonMobil has in the past followed the security precedents of TOTALEnergies and will no doubt do this again. That ExxonMobil is a partner in the Coral South project could strengthen its bargaining hand.
That LNG plays a pivotal role in the energy transition for both ExxonMobil and TOTALEnergies is beyond dispute.
ENI’s pole position that the company has with its Coral South project cannot be underestimated. And with Rovuma and Mozambique LNG scheduled to come on stream possibly in 2027, with a weakened global demand for LNG, both ExxonMobil and TOTALEnergies may have to go cap-in-hand to ENI to discuss possible project options. Finally, do not forget that the Government of Mozambique will seek an orderly development of its LNG resources. Certainly, a story of musical chairs in the make.
Gerard Kreeft, BA (Calvin University, Grand Rapids, USA) and MA (Carleton University, Ottawa, Canada), Energy Transition Adviser, was founder and owner of EnergyWise. He has managed and implemented energy conferences, seminars and university master classes in Alaska, Angola, Brazil, Canada, India, Libya, Kazakhstan, Russia and throughout Europe. Kreeft has Dutch and Canadian citizenship and resides in the Netherlands. He writes on a regular basis for Africa Oil + Gas Report and is a guest contributor to IEEFA(Institute for Energy Economics and Financial Analysis) based in Cleveland, Ohio, USA. His book ‘The 10 Commandments of the Energy Transition ‘is on sale at https://books.friesenpress.com/store/title/119734000211674846/Gerard-Kreeft-The-10-Commandments-of-the-Energy-Transition