BP has agreed a 20-year deal with Eni of Italy to buy liquefied natural gas from a big new field off the coast of Mozambique in a step toward the south-east African country’s emergence as a force in global energy production.
By guaranteeing a customer for the entire output of the Coral South field in the Indian Ocean, the BP contract clears the way for Eni to make its long-awaited final investment decision on the multibillion-dollar project.
It could also add impetus to efforts by Eni to sell a stake in its Mozambique assets, with Exxon widely touted by bankers and analysts as the most likely buyer.
Eni has been at the forefront of several big gas discoveries off the Mozambique coast, raising hopes of a natural resources boom for one of the world’s poorest countries.
Development has been delayed — and projections for the economic windfall trimmed — since the collapse of oil and gas prices two years ago. However, Tuesday’s deal between BP and Eni will reinforce confidence that investment will soon begin to flow.
Eni holds a 50 per cent stake in the Area 4 block involved in the contract. The other half is owned by CNPC of China, Galp Energia of Portugal, Kogas of South Korea and Mozambique’s national oil company, Empresa Nacional de Hidrocarbonetos.
Claudio Descalzi, Eni chief executive, has previously said the company was on course to give the final go-ahead for development late this year.
He is also aiming to reach agreement on the planned sale of a stake in its Mozambique interests by the end of 2016 or early next year.
Eni is looking to bring in a partner with financial strength and industrial expertise to help build the infrastructure needed to bring Mozambique gas on stream. Exxon has declined to comment on reports that it is close to a deal with the Italian company.
The development plans for Coral South include a floating production facility with capacity for over 3.3m tonnes of LNG per year. The scheme was approved by the Mozambique government last February.
“Through this agreement [with BP], the Area 4 partners have achieved another fundamental milestone for the execution of the Coral South development project,” Eni said in a statement on Tuesday.
Paul Reed, chief executive of BP’s supply and trading business, said: “BP is pleased to play a key role in enabling Mozambique to be an LNG exporting country. The agreement adds to the diversity of our natural gas portfolio beyond the end of the decade, further enhancing our ability to meet the needs of our customers.”
Development of Mozambique’s resources would demonstrate that energy groups are still willing to invest in new production when the opportunity is big enough, despite the sharp slowdown in capital expenditure since the crash in oil and gas prices.
However, the deal could also increase industry concerns about the glut in global gas supplies after the opening of big new sources in the US and Australia in recent years, with further large reserves under development in Egypt and elsewhere.