Coral South FLNG project final investment decision draws near

Kogas and CNPC yet to give approval

A final investment decision on Eni’s Coral South floating liquefied natural gas project in Mozambique’s Area 4 is expected this quarter, though it had been earmarked for the end of 2016.

In an exclusive interview with Upstream, state oil company ENH’s chief executive Omar Mitha said the project is “pretty much advanced”.

Final investment decisions have been forthcoming from Eni and ENH, while Portugal’s Galp — despite reservations — gave its approval just before Christmas.

This leaves only South Korea’s Kogas and China National Petrol­eum Corporation (CNPC) to approve the project.

Kogas was due to give its approval before the New Year, but a decision was delayed, while there has been market talk that securing a final investment decision from CNPC may be the biggest challenge, partly because of financial constraints.

Mitha said a term sheet to fund cash-strapped ENH through the $12 billion project has been agreed.

“A development loan agreement will be drafted at a later stage but the core terms and conditions have already been agreed upon,” he told Upstream on the sidelines of CWC’s Gas Summit in Maputo.

He also highlighted that finalisation of a 20-year gas sales and purchase agreement with BP has helped underpin negotiations on financing the project.

“I have seen a huge financial appetite to go into the debt structure of the (development), which is a clear indication that if a project is well structured, capital is available,” he said.

Coral South involves six subsea wells feeding gas to a vessel able to produce 3.37 million tonnes per annum of LNG.

A consortium of Technip, JGC and Samsung Heavy Industries will build the vessel and provide the umbilical, riser and flowline system. The vessel will have to handle up to 575 million cubic feet per day, with production averaging 520 MMcfd.

GE is in pole position to land the subsea production system order.

Following a final investment decision on Coral South, sources said Eni will be keen to make progress on a second FLNG facility, Coral North, possibly coming online in 2024. The specifications for this second vessel are the same as for Coral South.

Eni has a 50% stake in Coral, with CNPC on 20% and Galp, Kogas and ENH each holding 10% interests.

Meanwhile, Anadarko is preparing the ground for a final investment decision later this year on a two-train LNG scheme at Palma in Cabo Delgado province, fed by gas from the Golfinho and Atum fields in Area 1.

Mineral Resources & Energy Minister Leticia Klemens told delegates at the CWC event that her ministry approved the resettlement plan in November and that she hopes the concessionaires achieve a final investment decision in 2017.

Mitha was rather more cautious, saying a final investment decision could come “at the end of next year or in early 2018”.

Anadarko’s Mozambique LNG scheme is expected to cost about $25 billion.

It comprises 20 subsea wells tied back to shore via three 16-inch, 100-kilometre long flowlines able to transport 1.7 billion cubic feet per day of gas to two 6 million tpa trains being built at a greenfield site on the Afungi peninsula.

Inhabitants in the area will have to be resettled.

After approval by the Energy Ministry and the Palma district government, the resettlement plan now has to be ratified by the Cabo Delgado government and gazetted.

Mitha said most legal and contractual frameworks “have been discussed at length and our expectation is that they will be approved this month”. Shortly after Upstream interviewed Mitha, the Council of Ministers approved Area 1 decrees related to gas and LNG exploitation, local gas supplies, petroleum revenue tax and the funding of ENH.

Once other decrees have been sanctioned, Anadarko can concentrate on turning heads of agreements with potential LNG buyers into formal sales and purchase agreements and then secure project finance.

“We are facing challenges in the LNG market place with depressed prices and buyers requiring flexibility so we have to step out of the box with respect to traditional project financing,” said Mitha. “From what I have seen, Anadarko is committed, has done a very good job and is close to landing a contract with one of the buyers. We’re looking at the premium market in the Far East, including South Korea and Japan but also China, Indonesia and Thailand.”

Mitha said LNG sales deals must be agreed quickly.

“There are projects in the US, Russia, Australia, the Middle East and we are all competing for the same buyers.”

He said Mozambican LNG projects will be cost-competitive but wants Anadarko to accelerate its project schedule “in order to gain trust and confidence, especially with LNG buyers who are looking for 20-year deals, supply diversity and security. Time is of the essence.”

“They need to know all the preparatory work is ready and once the HoAs are turned into SPAs that will be an assured step towards project financing.”

In early 2015, Anadarko awarded the CCS joint venture of CB&I, Chiyoda and Saipem a contract to engineer, procure and construct its initial two trains.

Three groups remain in the running for the umbilical, flowline and pipeline export system – Technip with Heerema, Saipem with Subsea 7 and McDermott with Allseas.

It is understood that Eni and Anadarko are working on plans to use a “minimum facility” support base at Pemba.

The ENH Logistics joint venture plans to build an oilfield service base at Pemba, but sources said Anadarko is not keen to use it due to issues with one of the joint venture partners.