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Mozambique’s onshore LNG struggling

Energy Global,

According to Business Monitor International (BMI), plans for floating LNG (FLNG) projects in Mozambique are firming up, with Eni announcing that the KD consortium, consisting of KBR and Daewoo Shipbuilding & Marine Engineering Company, has been awarded a front end engineering and design (FEED) contract for the Coral South Development Project FLNG facility. With this award, the KD consortium will be one of the three consortia competing for the engineering, procurement, construction, installation and commissioning (EPCIC) contract to build the FLNG.

The Coral South Development Project is the second FLNG project Eni is pushing forward in Mozambique, after closing initial tender proposals for FEED of the ‘Mamba’ FLNG project in June 2014. It would monetise gas resources from the Coral field, which is entirely located in Area 4, operated by Eni, as opposed to the Mamba complex, which spreads across Areas 1 and 4. Area 1 is operated by Anadarko.

Following the recent development on the Coral Field FLNG, BMI has chosen to factor in additional FLNG volumes into its Mozambique gas production forecast, with a proposed start up date of 2019/2020 achievable.

BMI’s forecast takes into account production from two FLNG units. Although Eni has highlighted plans for a third one to be located on the Mamba Complex, the lack of information regarding the third project precludes it being incorporated into the forecast.

BMI holds that a 2019 – 2020 first FLNG production is realistic, despite potential for small delays. It is estimated that the overall process of FEED and bidder selection for the two FLNG projects should be completed by the second half of 2015. In addition, the proposed FLNG projects will be hull based designs. Given the large engineering precedence on such projects, project lead times would be shorter than larger barge based design. BMI also noted that its moderate size will mean there are shipyard availabilities for its construction, reducing the risks of delays.

A four year period for FEED selection to project completion and transport to Mozambique therefore seems achievable, enabling BMI to include FLNG production start up of approximately 6 billion m3 between 2019 and 2020. This will enable Eni to monetise a portion of its offshore fields, ahead of the onshore Afungi LNG plant start up, which is subject to more uncertainties and propensity for delays than the FLNG projects.

Onshore uncertainties increase

Despite progress on the FLNG projects, BMI is pushing back first LNG production from the onshore Afungi complex by one year.

BMI has on numerous occasions highlighted the uncertainties regarding the timing of first onshore LNG production in Mozambique. While FEED studies for the terminal have been completed, delays in project FID, the Mozambique election, the absence of supporting infrastructure and regulatory uncertainties will slow the LNG project development.

However, the level of uncertainty has increased over the past two to three months due to falling LNG prices. Price uncertainties could affect the commercial viability of LNG projects worldwide. This will likely see companies hold off on FID decisions as they attempt to redesign projects to cut costs and wait for more certainty on the direction of prices. In the case of Mozambique LNG, BMI believes that the lower price environment will likely lead to companies seeking to secure more take off agreements or contracts for its first two trains before reaching FID. Currently, industry sources highlight that only 65% of LNG has been contracted by letter of intents.

BMI therefore now expects Train 1 of the Afungi facility to come online in 2021, as opposed to its previous forecast of 2020, and Train 2 in 2022, from a previous forecast of 2021.

Adapted from a report by Emma McAleavey.

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