Anadarko And Eni SpA In Talks On Mozambique LNG Plant

by Trefis Team
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Anadarko Corp (NYSE:APC) and Eni SpA of Italy are in talks to to build a liquefied natural gas (LNG) plant in Mozambique as part of a plan to jointly develop their recent major gas discoveries off the East African country’s coast. The two companies had independently discovered gas reserves in the Rovuma Basin. Anadarko has given a high-end estimate of 100 trillion cubic feet for the gas reserves in its Rovuma find. Recoverable gas reserves have been estimated as being anywhere between 30-60 trillion cubic feet. The Anadarko discovery is located close to another huge reserve found by Eni. The Italian company says that it has discovered close to 70 trillion cubic feet of gas in the region, of which 50 trillion cubic feet are part of the same geological structure as the Anadarko discovery. ((Anadarko in talks with ENI over Mozambique plant, Market Watch))

Click here for our full analysis of Anadarko Corp.

Importance Of Mozambique’s Reserves

Many large natural gas discoveries have been made since late 2011 off the coasts of Mozambique, Tanzania, and most recently Kenya. These have transformed East Africa into one of the world’s most promising energy provinces, so much so that the region may emerge as a strong competitor to Qatar and Australia in the battle to capture key export markets in Asia. However, before that can happen, a huge challenge is to build facilities on land to turn the reserves into liquefied natural gas, which can then be shipped to markets. Anadarko plans to build two LNG plants in Cabo Delgado in the first phase, each capable of processing five million tonnes of gas a year. ((Mozambique: Anadarko Announces Yet Another Major Gas Discovery, All Africa))

Anadarko has estimated the total cost of offshore development and construction of a new two-train liquefied natural gas terminal at $15 billion. According to the company, the target is to begin construction in 2013 with the goal to bring the resources to market in 2018. Once the gas reaches the market, it will become a huge part of the Mozambican economy. In April, Mozambique’s Minister of Mineral Resources, Esperanca Bias, said that natural gas is expected to eventually contribute around 13% to the Gross Domestic Product (GDP) of the country.

Anadarko is the operator of Offshore Area 1 where these reserves are located, and holds a 36.5% share of the fields. Its current partners are Mitsui of Japan with a 20% stake, Bharat Petroleum Corporation Limited and Videocon (both of India, with 10% stake each) and Cove Energy of Britain (8.5%). The Mozambican government is represented by its national oil company, Empresa Nacional de Hidrocarbonetos, which holds a 15% stake in the fields. The significance of the region’s reserves was underlined in the battle fought between Royal Dutch Shell and Thailand’s PTT Exploration and Production for the control of Cove Energy. PTT eventually won and snapped up Cove for $1.9 billion. ((RPT-UPDATE 5-Thailand’s PTT gets Cove Energy after Shell drops bid, Reuters))

We recently revised our price estimate for Anadarko to $88, which is about 20% ahead of its current market price. The revision reflects the impact of the fall in commodity prices in 2012 and the company’s revised production outlook. We reduced our forecast for the average price of natural gas, crude oil and Natural Gas Liquids (NGL) to reflect the drop in prices as reported by Anadarko. The company’s capital expenditure forecast has also been adjusted to reflect the change in the outlook for the industry.

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