East African LNG

Brian Hicks

Written By Brian Hicks

Posted February 21, 2013

India’s state-run Oil and Natural Gas Corporation (NSE: ONGC) is aiming to not only purchase a 10 percent stake owned by Videocon in a large Mozambique gas field, but also hopes to invest around $1 billion in a liquefied natural gas terminal to be situated in Mangalore.

According to The Business Standard, ONGC Videsh Ltd., the international organ of ONGC, and Oil India Ltd. (NSE: OIL) are presently working out the details of the Videocon deal. That company is looking for a minimum of $3 billion for the 10 percent stake, which the combine finds too high.

The stake is in the Rovuma basin, Offshore Area 1. Since OIL alone would not be able to carry out the deal, ONGC stepped in to work with the company. But it appears that other international oil majors like BP Plc (NYSE: BP), Exxon Mobil (NYSE: XOM), and China’s Sinopec (NYSE: SNP) have also deemed Videocon’s asking price rather too high, Business Standard reports.

The companies plan to process the gas at the Cabo Delgado facility in northern Mozambique and then ship it to Asian markets, where demand for LNG continues to grow rapidly.

That plant is likely to have a capacity of 20 million tons of LNG annually and should be operational by 2018. The operators of Offshore Area 1 and Offshore Area 4—presently the Italian oil major Eni (NYSE: E)—will equally split the facility’s capacity.

Meanwhile, ONGC and India’s Bharat Petroleum Corporation Ltd. are partnering with Japan’s Mitsui Group on a $1 billion deal to set up the import terminal at Mangalore in India. The facility is expected to have a capacity of 5 million tons.

The Business Standard reports:

“We are going to sign a memorandum of understanding with BPCL soon and already have an arrangement with Mitsui. A feasibility study is going on in this regard and our plan is to come up with a five-mt terminal,” ONGC’s Chairman and Managing Director Sudhir Vasudeva told reporters on Wednesday.

Currently, the companies are hashing details out with the New Mangalore Port Trust to figure out the facility’s location. India already had some LNG terminals—Petronet LNG’s 10 million ton facility in Gujarat, Shell’s (NYSE: RDS.A) 3.6 million ton plant in Hazira, and Ratnagiri Gas and Power Pvt. Ltd.’s 5 million ton plant in Maharashtra. Another plant, by Petronet, is expected to be up and running soon.

Numerous other domestic oil and gas operators and developers are also lining up LNG terminals for development, largely in response to the country’s ever-expanding appetite for LNG.

Likewise, pipeline infrastructure is also seeing impressive growth. ONGC, alongside the Videocon and Mangalore deals, is expanding the Kochi-Mangalore and Mangalore-Bangalore pipelines to expand GAIL’s Dabhol-Bangalore pipeline.

From Mozambique, LNG would be sent to the Mangalore terminal, which would then supply the numerous southern states of India.

The Offshore Area 1 block has been fairly promising for gas developers. The Prosperidade complex is estimated to have some 17-30 trillion cubic feet of recoverable natural gas, and the Golfinho/Atum complex around 15-35 trillion cubic feet.

Another discovery, Tubarao, is currently being explored with an appraisal well projected to be drilled sometime this year. Anadarko is the major operator of this block—it has a 36.5 operating interest—and Mitsui E&P follows with 20 percent. After that, the Mozambique unit of Bharat Petroleum and Videocon each own a 10 percent stake.

Altogether, the Offshore Area 1 block could hold up to 70 trillion cubic feet of recoverable natural gas.

Regarding the upcoming deal that is presently in the works, RTT News reports:

“We will be signing a MoU with BPCL for looking into the feasibility of setting up the LNG terminal at Mangalore,” ONGC Chairman and Managing Director Sudhir Vasudeva said, adding that “After the MoU, we will do detailed feasibility studies based on which an investment decision will be taken.”

Italy’s Eni has a 70 percent stake in the Area 4 field, with the remainder split between Portugal’s Galp Energia, South Korea’s KOGAS, and Mozambique’s own ENH.

In recent years, attention has turned to Mozambique for its seemingly vast reserves of natural gas, so it is very likely that international activity will only increase in that region as more and more oil and gas developers seek to respond to rising East Asian demand for LNG.

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