Timing could be right to get $15 billion LNG development underway
Six years ago, Anadarko Petroleum Corp. struck a huge pocket of natural gas off Mozambique, stirring speculation that the find could transform the poverty-stricken East African country into one of the world’s largest gas exporters.
At the time, China, India and Japan were snapping up contracts for waterborne natural gas, which is chilled until it turns into a liquid that can be transported by ship. Now, Asia and other parts of the world are overflowing with LNG, which has sharply curtailed investors’ appetite for major LNG developments like the $15 billion project that Anadarko wants to build in a remote, poor region in Mozambique.
But in an interview Friday, Al Walker, chief executive of The Woodlands company, said the project may come into production at just the right time, around 2022 or 2023. That’s when energy research firms IHS Markit and Wood Mackenzie forecast that global economic growth will have risen enough to spur another wave of demand for LNG.
Depending on the market, Anadarko may make its final decision on whether to plow $15 billion into Mozambique by next year, Walker said. That could put the project on track to begin shipping gas as global supplies dwindle.
“Our hope is we can move that pretty quickly,” he said.
The company has all but completed a key part of its negotiations with the Mozambique government, which involves forging an agreement on how to resettle families living in fishing villages along the coastline. It could cost some $300 million to resettle families in new homes that the company and its contractors have promised to build.
Anadarko has submitted its relocation plan and is awaiting the government’s approval.
The resettlement agreement, as well as several other unfinished contracts, is among the reasons Walker met Mozambique President Filipe Nyusi on Friday at Anadarko’s offices in the Woodlands.
Once negotiations are complete, the company’s Mozambique project will likely face the same challenges that other bigger oil companies have faced in constructing costly LNG facilities in regions with little infrastructure or skilled labor, said Bob Fryklund, chief upstream strategist IHS Markit.
Mozambique is one of the poorest countries in the world, with 2015 per capita income of $525, compared with more than $55,000 in the United States, according to the World Bank.
Over the past few years, three of every four major energy projects developing nations have come in over budget and delayed, according to IHS. Anadarko believes it could extract some 75 trillion cubic feet of recoverable gas from Mozambique, making its discoveries some of the largest of the past decade.
But heightened competition in coming years could leave the company little margin for error in a market that will likely get crowded again as rivals in the U.S. and Australia expand their gas-processing plants, Fryklund said.
“This is the best time to make a final investment decision because prices will likely have recovered in five years – the problem is you may not make that window,” Fryklund said. “It’s not an insurmountable challenge, but this is Anadarko’s first LNG project.”
Source: Houston Chronicle