International companies have been drawn to Mozambique lately due to the country's recently discovered natural gas reserves.
No less than 17 companies have expressed an interest in Mozambique's
liquefied natural gas (LNG) plans since 2012, encouraged by the
country's proximity to Asian and even European markets.
"We estimate
the gas discovered off Mozambique to date is worth USD 33 billion,
around USD 2 per barrel of oil equivalent; i.e., economics are robust
for a multi-train development [at around USD 1,500 per ton cost; or USD 8
per million cubic feet breakeven price/mcf breakeven price]," estimates
Oswald Clint, senior analyst with Bernstein Research.
The country
is unlikely to reach peak production till 2031 and compared to other
global competitors, Mozambique costs are much lower, the Wall Street
bank states.
Mozambique's average exploration sizes are seven times
larger than in mature regions, and with vast tracts of Mozambique's
140,000-square-kilometer land largely unexplored, the potential of new
discoveries are even greater.
More than 110 trillion cubic feet of natural gas has been discovered
offshore Mozambique, primarily by consortiums led by US-based Anadarko
Petroleum in Rovuma Area 1 and Italian energy giant Eni in Rovuma Area
4.
"Given the close proximity of the Mozambique discoveries, the
export project economics will be strongly dependent upon the clustering
of development and the extent of cooperation between operators," said
Ernst & Young in a report on the global LNG sector.
Hydrocarbon prospects lure oil giantsAnadarko
and Eni agreed to a cooperative development program for their adjoining
offshore areas and will, together, plan and construct a common onshore
LNG liquefaction/export facility. The agreement should facilitate
government approval of the developments.
Recently, Eni sold 28.75% stake in its East Africa operations to China
National Offshore Corporation (CNOOC), which gives the Chinese company a
20% stake in Mozambique gas assets worth 75 trillion cubic feet of
natural gas.
"Note that CNPC already have gas/LNG joint ventures in
place with Shell in Australia, China and Canada and there may be some
potential for coordination as Shell has also expressed interest in
Mozambique while highlighting that it felt headline prices close to USD
3.00 were too high," said Richard Hutton, analyst at RBC Capital.
Shell
has been scouting for Mozambique for some time, but has not been very
successful. In 2012, Shell butted heads with Thailand's PTT Exploration
and Production for an 8.5% interest in Anadarko's Rovuma Area 1
development in offshore Mozambique.
After multiple bids and counterbids, Shell withdrew from further bidding.
"However,
Shell is expected to continue to explore other options in the East
African gas plays, with Shell's deep experience in LNG development and
marketing expected to be particularly attractive to potential partners,"
notes E&Y.
Not everyone agrees about the prospect of Mozambique gas.
French
oil company Total S.p.A. said it is not active in mergers and
acquisitions in Mozambique, with its chief financial officer stating
that the country now has high cost of entry and high risks of delay and
cost overrun.
Oil off Mozambique With
an embarrassment of natural gas riches already discovered off the
Mozambique coast, energy companies are wondering whether there is any
oil to be discovered as well.
Bernstein's Clint says there is a 60% chance of oil deposits off Mozambique.
"While
it is a given that Mozambique's Rovuma basin holds a world-class gas
province, the evidence also suggests potential for oil in the basin.
However, the risks for oil are principally that: (a) explorers are
aiming to identify an uncertain source rock in the oil window (b) at a
location where there are also sufficiently developed overlying
reservoirs and (c) some seismic sections suggest it is more difficult to
close traps located further from the river mouth. Hence, we view the
risk as high."
Recent drilling programs suggest there is some oil. Eni is drilling for
oil in an area, which may have as much as 250,000 barrels, while Tullow
Plc is looking in an area with as much as 300,000 barrels.
"What is
particularly notable about these blocks is their size: While the average
block in the UK North Sea covers around 70 sq km, and the average block
off of Norway is around 150 sq km, these Mozambique blocks are 50 to
400 times larger," said Clint. "Larger blocks mean greater resource
potential and potentially give explorers more prospects to choose from,
which can be a positive for frontier drilling."
It's early days yet, but if commercial quantities of oil is discovered
off the coast of Mozambique, it will add to the supply glut in global
energy markets, and no doubt raise the country's international profile
even further.
© alifarabia.com 2013