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Eni reaches FID on Coral South FLNG project in Mozambique

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Updated at 19:50 local time: corrects project investment value, bank lending; adds projected government revenues and project lead time

Eni signed off on its $8 billion Coral South floating LNG project today at a ceremony in Maputo, attended by chief executive Claudio Descalzi and Mozambican President Filipe Nyusi.

The 3.4 million tonne per annum Coral FLNG plant will be the world’s first ultra-deep offshore FLNG project – and the first FLNG facility to be project financed, and will take five years from now to operation, Descalzi said.

Despite the project carrying major technical and political risk, it has attracted financing from 15 banks – three national and 12 international – who will lend $4.8 billion under the cover of guarantees from five export credit agencies including China EXIM, Korea EXIM, Italy’s SACE, and France’s Coface to finance construction of the FLNG facility.

“This is the only large FID [financial investment decision]taken in the last year in the industry, worldwide. So we have to be proud of this achievement, first as a country and secondly as a joint venture,” Descalzi said at the signing ceremony.

Claudio Descalzi speaking at the FID ceremony in Maputo.

Claudio Descalzi speaking at the FID ceremony in Maputo.

The upstream portion of the project – which involves drilling for and pumping gas, and which is estimated to cost around $3.2 billion – will be financed on the concessionaires’ balance sheets.

A consortium of TechnipFMC, Samsung, and JGC, has been selected to build the FLNG vessel in shipyards in South Korea. The engineering, procurement and construction contract was signed today at the Polana Hotel in Maputo, along with the bank financing documents.

All of the project’s output of LNG will be bought by UK oil major BP when the project starts production in 2022.

The Coral FLNG project “will generate annual gross revenues of over US$1.5 billion per year (before tax) for 25 years, utilising 4.7 trillion cubic feet of gas over its lifetime, ”according to Alasdair Reid of global energy consultancy Wood Mackenzie.

“This is really good news for the government of Mozambique. It demonstrates that, despite ongoing credit issues, there is still enough belief in the investment climate for partners to raise finance and move projects forward,” Reid said.

Mozambique is going through a financial crisis and is currently in sovereign default following the revelation of $2 billion in government-guaranteed debts taken out in secret in 2013 and 2014 by quasi state-owned companies.

The floating project, and the long-term sales contract to a single buyer, reflect “the reality of how the global economy works,” President Filipe Nyusi said at the ceremony – saying the country had sacrificed potential revenues and gas for domestic development in order to get the first of the Rovuma Basin projects to FID. Nevertheless, Descalzi said the project would bring $16 billion revenues to Mozambique over its 25-year lifetime.

Eni is the operator of Area 4 with a 50% stake, China’s state-owned CNPC holds a 20% stake, Mozambique’s national oil company ENH holds a 10%, South Korea’s Kogas holds 10% and Portugal’s Galp Energia (10%).

ENH announced this week it has created a special purpose vehicle, ENH FLNG UM, to represent its  interests in the Coral LNG project, and support the project financing of the FLNG vessel.

US supermajor ExxonMobil is now finalising a deal to take a 25% stake in Area 4, which is expected to close in September. The company announced in March it had signed an agreement with Eni to buy a 25% stake in the block for $2.8 billion.

Following closure of the deal Eni will continue to lead the development of the Coral FLNG project and all upstream operations in Area 4, while Exxon will lead the construction and operation of the onshore LNG plant.

A plan of development for the 10 mtpa onshore plant is expected to be submitted to the government for approval later this year.

The Coral FLNG is “just an appetiser,” of what is going to happen with the Rovuma Basin gas, Descalzi said.

Eni is planning to anchor a second FLNG vessel using gas from the northern part of the Coral field, which is estimated to hold 16 trillion cubic feet of gas, but FID on that project is not expected until after 2020.

© 2017, Zitamar Ltd. Reproduction and dissemination prohibited without written permission.

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