Key LNG projects line up ECA financing
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The increased focus on upstream LNG looks likely to intensify, and the sheer scale of many of these projects will require funds from a range of sources, not least ECA support. Jonathan Bell highlights a couple of prime examples where the ECAs are likely to play leading roles.
Over the past year the growing demand for natural gas has changed the sentiment about the demand-supply equation. The glut of liquefaction capacity earlier anticipated by LNG project developers is unlikely to materialise. And with delays to some of the major projects, rising oil prices and increasing demand for gas from China and India in particular, gas field developers are increasingly confident conditions are once again ripe for new projects.
It is estimated that China and India alone will account for half of the 30% increase in global energy demand between now and 2035. And China has stated that it aims to increase gas in its total energy consumption from 6% to 15% by 2030. It certainly appears that it is moving in that direction, despite the huge amount of coal-fired power it is generating and the fast-pace of renewable development in the country. LNG has been heralded as the fossil fuel of the future thanks to its relatively low carbon emissions.
As I wrote in my blog ‘The changing pace and face of upstream gas’ back in September 2018, many of the large Australian projects have faced severe delays and cost overruns – which has created something of a rethink in the way many gas projects now move forward.
At the same time, the massive gas industry developments which have taken place in the US has led that country to become a net exporter of gas. This will further develop as new US terminals are brought online, and the US can be seen as a main source of growth. According to the International Energy Agency, by 2022 the US will be vying with Qatar and Australia to be the world’s largest gas exporter.
It is estimated that the global LNG market will require over 200 million tonnes per annum (mtpa) of new supply through to 2030. Which means that somewhere in the region of a further 100+ mtpa needs to come on stream between 2020-2025 to ensure markets are adequately supplied. To cash in on this, Qatar, the world’s largest LNG producer, is looking to expand its facilities by around one third to produce 100-108 mtpa by 2023-2024.
Globally, several liquefaction projects came on stream last year – for example Ichthys, Cameroon FLNG Train 1, and Cove Point Train 1 etc. But with the increased demand and other factors, many analysts now envisage a constrained supply scenario and a widening supply gap over the next five years. The supply-demand balance now looks more favourable towards producers.
And one project moving ahead rapidly at the current time is Anadarko Petroleum’s development of the Mozambique Area 1 development. Anadarko, with financial advisory from Societe Generale, has launched a $14.5 billion 18-year project financing to banks and export credit agencies (ECAs) to fund its $20 billion Mozambique LNG project. Responses are due by the end of February.
It is understood that around $12 billion of funding will be provided and covered by ECAs including Export-Import Bank of China (China Exim), JBIC, South Korea’s Kexim, Export Credit Insurance Corporation of South Africa (ECIC), Italy’s SACE, Atradius of the Netherlands and US Exim. The remaining $2.5 billion will be uncovered debt.
The Anadarko-operated Mozambique LNG project will be Mozambique's first onshore LNG development, initially consisting of two LNG trains with a total nameplate capacity of 12.88 mtpa to support the development of the Golfinho/Atum fields located entirely within Offshore Area 1. The US oil major aims to build from scratch a massive 17,000-acre liquefaction complex in north Mozambique to chill gas pumped from the Golfinho/Atum fields, 16.5-kilometres offshore.
Anadarko Moçambique Área 1 Ltd, a wholly owned subsidiary of Anadarko Petroleum Corporation, operates Offshore Area 1 with a 26.5% working interest. Co-venturers include ENH Rovuma Área Um, (15%), Mitsui E&P Mozambique Area 1 (20%), ONGC Videsh (10%), Beas Rovuma Energy Mozambique (10%), BPRL Ventures Mozambique (10%), and PTTEP Mozambique Area (8.5%).
On the offtake front, yesterday (5 February), Anadarko announced that Mozambique LNG 1 Company, the jointly-owned sales entity of the Mozambique Area 1 co-venturers, had signed a sale and purchase agreement (SPA) with Shell International Trading Middle East for 2 mtpa of LNG per annum for a term of 13 years.
Commenting on this, Mitch Ingram, Anadarko executive vice president, international, deepwater & exploration, said: "With demand for LNG expected to grow worldwide in the middle of the next decade, Shell's strong global reputation in LNG, combined with Mozambique LNG's significant resource and favourable geographic location, create a unique opportunity to provide customers with a long-term, reliable supply of clean energy.”
In addition, Anadarko announced an SPA with Tokyo Gas Company and Centrica LNG Company. That long-term co-purchasing offtake agreement calls for the delivered ex-ship supply of 2.6 mtpa from the start-up of production until the early 2040s.
And another SPA was also signed with CNOOC Gas and Power Singapore Trading & Marketing for 1.5 mtpa for a term of 13 years. Ingram stated: "This deal gives China's largest LNG importer access to Mozambique LNG's world-class gas resources and will provide China with a clean source of energy for years to come. This agreement adds to our growing list of customers in the Asia-Pacific region, demonstrating the excellent progress we are making toward our stated goal of taking a final investment decision during the first half of this year. We expect to announce further SPAs in the near future."
On the EPC side, Saipem, Chiyoda and Chicago Bridge & Iron, have been selected to build the project. And last week Anadarko announced the selection of the preferred tenderers for provision of the subsea production systems. Formal award will follow final agreement of contracts and Mozambique LNG taking a final investment decision.
In Mozambique, Anadarko is expected to be closely followed by launch of the $15 billion Exxonmobil-led Rovuma LNG financing. The project will produce 15 mtpa of LNG per year, or 5% of global output. Bankers suggest that both projects in Mozambique could reach financial close in 2019.
With a grand total of around $30+ billion of debt and equity to be raised for two projects in the same geographic market, bank and ECA country limits are going to be stretched. (In 2017 Exxonmobil bought a 25% in Eni’s Rovuma development in Mozambique for $2.8 billion, which holds a massive estimated resource of 85 trillion cubic feet.)
Of immediate concern to any investor in Mozambique is the country’s debt situation. And government ministers in late 2018 had a series of meetings with the IMF over the whole issue of debt. But there are also concerns about undisclosed debt going back a couple of years. Some country analysts have suggested that Mozambique may renege on those debts. The government has stated that it intends to honour its commitments to international creditors. However, the fiscal credibility of the government has been severely damaged by the handling of debt over the past couple of years.
Interestingly, the IMF has estimated that the total investment around Mozambique LNG projects will amount to around $100 billion over the coming decade.
With all this in the background, gas and other resource-based projects where long-term offtake is taking place still look highly capable of being financed and progressing successfully. Mozambique has been described as a country of two economies – one within the gas offtake development sector, and one outside of this. Any state-owned company involvement in gas projects will require those investors to meet conditions similar to those of the other shareholders.
Arguably, of more concern to the ECAs could be the requirement to address environmental considerations in this area of northern Mozambique. It is understood that the ECAs involved have collectively contracted an Italian consulting firm, RINA, to conduct an environmental impact assessment of the Anadarko project. Anadarko is believed to have already completed its own impact assessment through a company named Environmental Resources Management/Impacto.
The risk of terrorism by Al-Sunnah terrorists in northern Mozambique is also a hotly debated topic. Analysts seem somewhat divided on this subject, with the majority seeing terrorist activity as relatively low key and confined to village attacks. There have been no attacks on foreign direct investment. Perhaps key to keeping the peace will be the need for a trickle down of benefits and infrastructure to the local population from foreign investors and the government. But just how committed the government – both centrally and locally is to this remains to be seen.
In another LNG project example – this time in Asia - stakeholders in the Papua New Guinea LNG project are in discussions with ECAs and commercial banks for up to $9.8 billion of debt to fund the next expansive phase of the project. ECAs from Japan, South Korea, China and Australia are believed to be in discussions. The financing is expected to close in 2020.
The long-awaited expansion of the PNG LNG project is estimated to cost a total of around $12-$14 billion and involves construction of three new gas processing trains at the Papua New Guinea LNG plant.
The PNG LNG expansion would be the largest resources-related borrowing in Oceania since March 2010, when the PNG LNG project raised $14 billion in initial funding from ECAs, commercial banks and lead sponsor and operator Exxonmobil. The $1.95 billion commercial portion on that deal attracted 17 banks. PNG LNG is already operational.
Elsewhere, and also in new emerging market territory, one other interesting project to keep an eye on will be the Greater Tortue Ahmeyim gas project sandwiched between Mauritania and Senegal. In December 2018, BP and Kosmos Energy announced a final investment decision for Phase 1 of the groundbreaking project. Kosmos said the decision was made with BP and the two state oil companies, Petrosen and Société Mauritanienne des Hydrocarbures et de Patrimoine Minier, following a meeting to agree final elements held in Nouakchott between President Mohamed Ould Abdel Aziz of Mauritania and President Macky Sall of Senegal. No news of ECA involvement has filtered through so far – but watch this space!
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