The recent announcement of Exxon LNG write-downs, amounting to anything from US$17B to US$20B of its natural gas assets, should not affect the plans for its Rovuma LNG project in Mozambique, whose FID has been in somewhat of a limbo, made worse by the coronavirus pandemic. We have recently reported on their FID delay here.
The write-downs are justified by Exxon as a need to “prioritize near-term capital spending on advantaged assets with the highest potential future value”. For me, that is all the confirmation needed to infer that Area 4 is safe and will receive the go-ahead next year.
Firstly, it is important to say that Exxon’s announcement does actually list the write-down targets as located in the US, Canada and Argentina. But since I have sensed some doubt hovering over Exxon’s Area 4 FID recent antics, I have decided to convey my thoughts on why I actually think the most recent announcement reaffirms Exxon’s position on Mozambique Area 4.
Here’s why: as they stand, LNG developments in Mozambique are actually the perfect case study to showcase what is necessary to finance a large-scale exploration project anywhere else in the continent. If it is potential future value Exxon is looking for, then they should look no further.
The Mozambican Government is working to create the necessary conditions to turn the country into a preferred investment destination. Not many countries in Africa today can say the same, and those developments have actually been achieved and consolidated despite the insurgency conflicts in Mozambique’s northern region.
Tanzania and Equatorial Guinea, for instance, have both been unable to capitalise on potential LNG developments due to less than ideal fiscal and/or regulatory frameworks which have either deterred the securement of foreign investment or delayed development for years to come, smothering a flame that may not burn again, no matter how much gas surrounds it.
The groundwork is already laid out
Sub Saharan Africa is set to become – sooner rather than later – the major producer and exporter of the fossil fuel in the continent, with most estimations claiming that in 5 years or less, 8% of the global LNG production capacity will be concentrated in the region. Mozambique, in its turn, will skyrocket and most likely figure between the top 10 LNG producers in the world, provided that Area 4 sees its FID taken and its expected 85 trillion cubic feet of natural gas can be explored.
The very fact that very recently Total and Exxon have been reported as negotiating a resource-sharing deal over their massive LNG projects in Mozambique, with each company seeking to extract more gas from a shared field that straddles the two developments and thus cut costs, cements my belief and quite frankly bolsters my argument that Area 4 is very much alive and well within Exxon’s plans for the future.
A future of quite promising potential value.