Eni inks Coral South FLNG agreements

Thursday, June 1, 2017

Eni on Thursday signed the drilling, construction and installation contracts for its proposed Coral South floating liquefied natural gas (FLNG) project, the first FLNG project offshore Africa and the third FLNG facility globally.

Image from Eni Twitter.

“As the world transitions to a low-carbon energy mix, Eni believes that the use of gas is critical to achieving a more sustainable future," Eni CEO Claudio Descalzi said in a 1 June press statement.

Descalzi, project partners and Mozambique government officials kicked off the Coral South LNG development in a ceremony 1 June in Maputo. Saipem reported Thursday that it had signed a contract with Eni for the drillship Saipem 12000. Through 15-month contract, set to begin in mid-2019, the Saipem 12000 will be used for offshore Mozambique drilling activity, including the Coral South project.

"Our ambition to become a global integrated gas and LNG player is based on working alongside key partners such as Mozambique. The Coral South Project will deliver a reliable source of energy while contributing to Mozambique’s economic development. This partnership approach with our hosting countries is the foundation on which our joint sustainable growth strategy is built,” Descalzi says.

The FLNG facilities' construction will be financed through project finance covering around 60% of its entire cost. This is the first project finance ever arranged in the world for a liquefaction floater. The financing agreement has been subscribed by 15 major international banks and guaranteed by five Export Credit Agencies, Eni said in the release.

Eni gave its initial go-ahead for the project in November 2016, but was waiting on investment approval from its project partners. Eni is the operator of Area 4, through its participation in Eni East Africa (EEA), which holds a 70% participating interest in the concession while Portugal’s Galp Energia, South Korea’s Kogas and Mozambique’s Empresa Nacional de Hidrocarbonetos (ENH), each hold 10% stake. Eni holds 71.4% shares of Eni East Africa with China’s CNPC holding 28.6%.

Using an FLNG development option will let Eni and partners realize cash flow from Mozambique earlier. Expected to generate annual gross revenues of more than US$1.5 billion per year (before tax) for 25 years, the facility will use 4.7 Tcf of gas over its lifetime. First LNG production from Coral South is expected in 2022, according to energy consultancy Wood Mackenzie.

The news indicates that, despite ongoing credit issues, enough faith still exists in Mozambique’s investment climate for partners to raise finance and move projects forward, Alasdair Reid, Research Manager Southern and East Africa for Wood Mackenzie, said in a 1 June press release. The project also has beaten proposed onshore LNG projects in Mozambique to final investment decision.

With huge long-term potential for offshore gas in East Africa, Wood Mackenzie expects the region will see a big hike in investment over the next decade “as gas becomes an increasingly important part of the global energy mix,” Reid commented.

Over the past two years, LNG project sanctions have been few and far between due to prevailing oversupply in the LNG market, says Matthew Day, global LNG analyst with Wood Mackenzie. The sanctioning of Coral and Fortuna “highlights a positive shift in industry perception towards the FLNG concept.”

“Majors Eni, Shell, Exxon and recently BP have all now endorsed the floating LNG concept,” Day says. “With stranded gas resources suited to FLNG elsewhere in Africa, Mozambique offers Eni an ideal regime to test this new approach.“

Smaller-volume projects are moving forward in this oversupplied environment. With an output of 3.5 MTPA, all contracted to BP in a 20-year agreement signed last October, Coral has had an easier time of finding a market compared to other mega-projects chasing sanction.

“With global activity levels and costs low, now is a good time to add new capacity, even if the LNG market does presently look over supplied. By the time Coral produces first LNG in 5-7 years time, new LNG supply is likely to be required in the global market,” Day explained.

Discovered in May 2012, the Coral field is located within Area 4 in the Rovuma Basin and contains about 16 Tcf of gas in place, according to Eni's press statement. Coral is in over 2000m of water 80km offshore the Cabo Delgado province.

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Categories: Africa FLNG

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