Oil PSUs start payments for Mozambique LNG project

New Delhi: Oil and Natural Gas Corp, Bharat Petroleum and Oil India have begun making their share of payment of about $2 billion towards the much-delayed Mozambique liquefied natural gas (LNG) project.

Three state-run firms have a combined 30% participating interest in the Mozambique gas project, which made a final investment decision last year to spend about $15 billion on developing gas fields and liquefaction project. About 60% of the project cost is planned to be funded by debt while the balance 40% would be shared as equity contribution by all stakeholders proportionately. Of the $6 billion equity component, Indian firms will contribute about 30% or a little less than $2 billion.

ONGC, which owns 16% participating interest in the project, will have to pay about $1 billion while BPCL and Oil India with their 10% and 4% interest, respectively, will contribute a little less than $1 billion together, according to people familiar with the matter. The cash calls have started and companies have begun transmitting their contributions, they said. The full contribution will have to be made over four years.

Total, the French energy giant, is the operator of the project with 26.5% stake, which it acquired last year for $3.9 billion. Japan’s Mitsui holds 20% while the balance is split between ENH (15%) and PTTEP Mozambique Area 1Ltd (8.5%).

The current project involves development of the Golfinho and Atum fields located within Offshore Area 1 and the construction of a two-trains liquefaction plant with a capacity of 12.9 million tonnes per year. The Area 1 contains more than 60 trillion cubic feet (Tcf) of gas resources, of which 18 Tcf will be developed with the first two trains. The project will start production by 2024, according to Total.

The project was initially expected to start production in 2018. A collapse in the oil and gas market that began in 2014 contributed towards the delay in the Mozambique project. A supply glut in LNG market made it harder for the project operators to find buyers. But the project has now been able to sell almost 90% of its production through long-term contracts with LNG buyers in Asia and Europe. The project would also provide gas for consumption in Mozambqiue. The LNG market is currently oversupplied as liquefaction projects have proliferated across the globe. Analysts do not expect LNG prices to recover quickly.