Tokyo Gas Co, Japan’s largest gas utility and a major LNG player, and British energy supplier Centrica agreed on Tuesday to jointly purchase 2.6 million tonnes of LNG per year from Mozambique LNG Company Pte Ltd. The two companies said that LNG will be delivered ex-ship from Mozambique LNG from the start-up of production until the early 2040s.
Mozambique LNG1 is owned by U.S. oil and gas producer Anadarko Petroleum Corporation and partners in a consortium which is developing the project aimed at serving both the Asia-Pacific and European markets. Currently, the Asia-Pacific region makes up around 72 percent of global LNG demand with that amount forecasted to increase to around 75 percent amid ramped up LNG demand in China.
The project will consist of two liquefaction trains (production units) with the capacity to produce 12.88 million tonnes per annum (mtpa) in its initial phase and is expected to be completed by 2023-2024. An all-importance final investment decision (FID) is expected this year. An FID must be reached before financing and then construction can begin.
Tokyo Gas expands
There are several takeaways from this disclosure. For starters, it shows how Tokyo Gas is becoming a growing force in global LNG development and markets. Just last week, the Tokyo-based firm said it planned to leverage its links with foreign partners or team up with other Japanese companies to chase deals. “We want to make an aggressive investment in Southeast Asia and North America this year to expand our LNG value chain,” he told Reuters in an interview. Related: Bank Of America: Oil Demand Growth To Hit Zero Within A Decade
Under a three-year business plan that was implemented last April, Tokyo Gas has earmarked some 260 billion yen ($2.4 billion) for investment to boost its earnings overseas to 20 percent of its targeted operating profit of 130 billion yen in the year to March 2021. In the year to March 2018, earnings outside of Japan accounted for approximately 5.8 percent of its group operating profit of 116.3 billion yen.
This is showing a continued bullish growth approach for the giant gas utility that has pivoted itself from being overly reliant on restrictive long-term off-take agreements with traditional LNG producers, like Qatar, to become a trader of the super-cooled fuel in the spot market and for short term deals. It also shows how far the firm will venture from its core business to not only lock in security of supply but to also increase its global footprint as LNG is poised to be traded more like a true commodity, albeit in time, like the top two global commodities, crude oil and iron ore. Last year, Tokyo Gas said it was keen to invest in LNG infrastructure in Southeast Asia, a region that is also poised for growth, particularly in Vietnam, the Philippines and Thailand.
Mozambique poised to be a global LNG player
The disclosure also shows how Mozambique is positioning itself to become a major LNG player, even as the country still struggles with financial and political headwinds. At the start of January, U.S. oil major Exxon Mobil said that it, along with project partners in Mozambique's Area 4 concession, had secured LNG off-take commitments for the Rovuma LNG project.
Yet, as a pointed out in my January 2 OilPrice.com post, the challenges for Mozambique are manifold. Mozambique will have to navigate dangerous waters as it becomes a global LNG producer, including the so-called oil or natural resources curse that has plagued major oil and energy producing nations that otherwise are poor, have large amounts of national debt, weak institutions in place and a history of political corruption.
Mozambique is facing down a huge amount of debt that puts it at a disadvantage from the start. Mozambique's debt quandary came about a decade after international creditors wrote off more than $6 billion worth of bad loans. Just two-and-a-half years ago the Mozambique government disclosed previously hidden government debt of another $1 billion.
A DW report said in August that as Mozambique’s hidden debt scandal continues, groups are pushing for the secret loans triggered by the financial crisis, to be declared illegal. The report added that Mozambique’s economic woes were brought on by secret loans that were backed by the county's finance minister without parliamentary approval, which is required by the constitution.
By Tim Daiss for Oilprice.com
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