India, China battle it out in Mozambique gas fields to secure energy assets

MUMBAI: The great game between India and China to secure energy assets around the world is now all set to play out in the deep waters of Mozambique – home to the world’s biggest gas discovery in a decade

Just hours before the deadline for non-binding bids for Videocon’s 10% stake in Rovuma offshore block in Mozambique were to be submitted, China’s largest oil producer, China National Petroleum Corporation (CNPC), picked up a strategic 20% stake in ENI SpA’s Mozambique asset for $4.2 billion on Thursday. With this acquisition, CNPC will get access to 75 trillion cubic feet of in-place resources, or more than Norway’s existing reserves.

Incidentally, the block in question -- Rovuma Offshore Area 4 -- is adjoining to Rovuma Area 1, where Videocon and consortium partner Anadarko are both selling 10% each.

With the Chinese stepping in, a bidding war for the adjoining acreage is therefore also anticipated by most. With expected recoverable gas reserves of close to 60 trillion cubic feet (tcf), Rovuma-1 is among the most sought global gas asset today. Even at a 50 per probability of recovery success –“P2 or proven plus probable reserves” in industry parlance – the expectation is of 42 tcf of natural gas. To put it in context, this is twenty times India’s current annual gas consumption.
Mozambique may have 250 trillion cubic feet of reserves, according to Empresa Nacional de Hidrocarbonetos, the country’s state-backed energy company.

“If things go well in Mozambique, it may well end up being the second largest LNG exporter in the world after Qatar and overtaking Australia. Large consumers of gas are already present there - like India - or seeking a toehold like the Thais and now even the Chinese. Shell, the largest LNG player globally is keen to step in. From an energy security point of view, Indian companies like OVL and OIL will look at the opportunity but at the end of the day, it will be an economic decision,” said Niraj Mansingka, an oil and gas analyst at Edelweiss.

“The Chinese have been very aggressive in their pursuit of assets for their long term energy security. Indian oil companies who are sitting on cash should also up their ante. I see competitive bids from them in Mozambique now,” said an industry official, aware of the ongoing developments.

State owned ONGC Videsh (OVL) and Oil India are expected to compete with Asian peers like Sinopec along with some of the biggest global names Shell, BP, for a strategic toehold in Mozambique as the bids for Rovuma 1 are due this week. Thailand’s PTT Exploration and Production Public Company Limited (PTTEP) which already owns 8.5% stake in the field is also expected to put in an aggressive bid for upping its economic interest. Last year, PTTEP trumped Shell and 20 other suitors like BP, Exxon Mobil and Chinese operators in a $1.91 billion deal with Cove Energy, a small UK explorer.

The Cove transaction has already set a benchamark for Videocon. On a comparative valuation with Cove, Videocon’s 10% interest should have a $2.15 billion – $2.25 billion valuation, but according to an investment banker directly involved in the transaction, Venugopal Dhoot, Videocon’s promoter is expecting a significant premium of $2.7 billion for his stake.

“The floor price is already being set. With the Chinese coming in, it builds the competitive tension,” said another company official directly involved on condition of anonymity as the discussions are still underway.

Most analysts feel even in this round Shell, PTTEP and Sinopec will be most competitive. Especially Shell, having lost out on the previous round.

Even though Videocon is cashing out, India through BPCL will continue to have a 10% interest in Mozambique Rovuma 1 block. “But higher stake would mean additional equity gas marketing rights. The more we are the better it is. CNPC’s entry means their share will be shipped straight back to China. OVL, Oil must up their tempo in East Africa,” explained Anish De, CEO, Mercados Asia, a specialised energy consulting firm.

The Mozambique project envisions a $20 billion capex in upstream and downstream-related investments. The commercial prospects of the development plan received a boost recently when Anadarko Petroleum Corporation and ENI – the two operators at Rovuma – established a coordinated development of the common natural gas reservoirs spanning the two blocks. The agreement signed by the two facilitates a work program whereby the two operators will conduct separate, yet coordinated, offshore development activities, while jointly planning and constructing common onshore liquefaction facilities in the form of an LNG (liquefied natural gas) park in northern Mozambique.