East Africa LNG projects likely to face delays

LNG production in Tanzania and Mozambique along the East African coast is likely to face delays despite huge finds due to high cost of production, difficulty in access to financing partners as a result of low returns of natural gas.

This is according to the director of projects and technology at Royal Dutch Shell Mathias Bischel who cast doubt that major gas discoveries around the world will be built

‘I believe the speed with which the East African projects have been promised is somewhat ambitious since all infrastructure there has to be built from scratch,’ Shell’s Bichsel said in an interview with Reuters.

In Mozambique Anadarko announced it had signed for two-thirds of the capacity of the first train of its planned liquefied natural gas project in Mozambique in March this year as the country prepares itself to start production by 2018.

Mozambique has to date discovered 150 trillion cubic feet of gas  prompting a need to liquefy and export the gas with Anadarko estimating its offshore block Area 1 would be enough to feed a 50 million tonnes per annum LNG plant comprised of 10 LNG trains of 5 MMTPA capacity each.

Tanzania on the other hand with an estimated 46.5 trillion cubic feet of natural gas reserves discovered estimates to start production by 2017 supplying markets in East and South Asia, Europe and Latin America, including Pakistan, China, Spain and Chile.

In March this year, Tanzania Petroleum Development Corp’s Acting Director of Exploration, Production and Technical Services Emma predicted that, by 2016, the country’s natural gas reserves would reach 200 trillion cubic feet.

Bischel cites various projects around the world that have hit a glitch including the development of the Israel flagship Leviathan gas project in the East Mediterranean where Australia’s Woodside Petroleum pulled out of the agreement to take up a stake and in Australia where Shell exited the Wheatstone LNG project.

In other regions the director says the high cost of labor and complex will remain to be the biggest issue in the production of technology.

‘Costs in the oil and gas sector are still on the rise and outpacing inflation, and gas projects are extremely price-sensitive because the margins are so thin,’ he adds.

There is also a general feeling in the industry that gas prices will drop in the near term that has led to consumers mainly in Asia to sign shorter deals from the previous 20 year agreements.

The director is however optimistic that various research projects ongoing all around the world to bring down LNG production costs could bear fruit even as more uses of gas are discovered driving up demand from the 250 MMTPA last year.