Shell Makes a Bid for Cove Energy Plc as the Majors Move into Mozambique

In recent months Mozambique has reared its head as a global power in natural gas, boasting fields that are expected to be larger than those owned by Norway. Italy’s Eni SpA has found 40 trillion cubic feet of natural gas in its Mamba field, and Anadarko Petroleum Corp discovered a 30 trillion cubic feet deposit at its Rovuma site near to Mamba. According to the BP Statistical Review of World Energy Norway contained 72 trillion cubic feet of gas reserves in 2010, Mozambique is expected to surpass that figure.

The vast potential in East Africa has garnered interest from some of the biggest liquefied natural gas (LNG) organisations in the world who are looking to buy into some of the companies drilling and exploring in the area. Gas from East Africa is perfectly positioned to supply Asia, where demand for LNG is increasing at nearly 20% a year, mainly due to the growing economies of China and India. Deutsche Bank AG believes that the Mozambique finds are large enough to warrant two $20 billion dollar liquefied natural gas plants to supply Asia directly.

One company working in Mozambique is Cove Energy Plc, for whom Royal Dutch Shell Plc has made a $1.6 billion bid, which would give the Anglo-Dutch giant an 8.5 percent stake in Anadarko’s Romuva find. However, unwilling to settle for just an 8.5% share in the region, Shell said that they would be “assessing opportunities” to expand. Alejandro Demichelis, an analyst at the Bank of America Corp, stated that, “this move from Shell leaves other European majors behind.”

It is likely that BP Plc and Total SA will also look for ways into Mozambique, and Eni and Anadarko are offering. Anadarko has no experience in LNG and according to their senior vice president of worldwide operations, Chuck Meloy, are likely to sell part of their holding in the area. Eni’s CEO, Paolo Scaroni, also said that they are willing to sell a portion of their field.

To the north of Mozambique, Tanzania (where Cove also holds exploration rights) could have the potential for large natural gas deposits. Geological formations suggest that Mozambique’s fields may extend across the border and BG Group Plc has already found nearly 4 trillion cubic feet.

A managing director for energy investment banking at Bank of America, Ashwin Punde, announced that, “we’re talking about a phenomenal amount of gas to be discovered yet in East Africa.”

East African LNG will have to compete with Australian gas in the Asian market. Shell, Chevron, and other energy companies have committed to invest $250 billion in Australia to develop processing plants and export projects to supply Asia. However East African gas is expected to have a significant advantage from the start due to the lower project costs. As Bernstein analyst, Oswald Clint, confirms “we estimate that East African projects are likely to be significantly cheaper than Australian developments.”

By. Charles Kennedy of Oilprice.com