After exploration comes commercialization. With an LNG project, commercialization is a four-step process, the first of which involves establishing a robust legal framework. Teaming up with foreign companies on a resource project of the huge scale of the Mozambique LNG Project was a novelty for Mozambique, so new laws needed to be drafted to minimize foreseeable risks and guarantee a level of stability (and ultimately a stable supply of gas) over the decades of development and operation. Mitsui and the Mozambican government worked shoulder to shoulder for several years to achieve this.
The second step consists of preparatory work for the construction and operation of the project. Since Mozambique is a developing country with little domestic demand, the mature-economy option of piping gas direct to market was not feasible. Instead, the gas from the Mozambique LNG Project would need to be cooled, liquefied and exported by ship as LNG. Building a liquefaction plant is an expensive process, with the remoteness of the site (2,000 kilometers from the capital) and a lack of existing infrastructure only adding to the difficulties. Here careful planning and the use of experienced contractors plays a key role.
Step three involves the securing of the long-term LNG marketing contracts to provide all-important visibility and stability to the project. Then it’s time for the fourth and final step in the commercialization process: project finance. The technical requirements and estimated costs of the project are worked out through Front End Engineering Design (FEED). The necessary funds are then raised from official export credit agencies. The Mozambique LNG Project consortium raised over $14 billion in total from financial institutions in eight countries and regions including Japan, the US, the UK, the Netherlands, Italy and South Africa. In project-finance terms, this was a deal at the highest level.
Moving toward production
Completing those four steps took eight years. Thanks to our previous experience with LNG projects, our commitment and our close collaboration with the project partners, Mozambican government and other stakeholders, we managed to work our way through all the challenges that came up.
With the FID completed in June 2019, the construction and engineering phase is now getting under way. Long-lead items, such as the cryogenic heat exchangers—gigantic vertical tubes in which gas is cooled by heat exchange with a refrigerant—are on order. The ground is being cleared at the LNG facility site, an aerodrome and houses built for the construction workers, and the road widened for heavy haul trucks.
The subsea system (18 wells and a 40km pipeline) to extract the gas and bring it ashore from the block’s first field, Golfinho/Atum, should be ready before the completion of the liquefaction facilities. Meanwhile, production is scheduled to start in 2024. The annual capacity of 12 million metric tons will be equal to roughly one-sixth of Japan’s total annual demand.
Working for the prosperity of Mozambique
The Mozambique LNG Project promises to be transformative for Mitsui, as the company increases its equity share of production capacity to over 10 million tons per year in the coming years. But the project should also be transformative for the host country. Despite macroeconomic reforms having quadrupled GDP between 1993 and 2017, Mozambique still has plenty of potential to develop, with overall GDP of $14.5 billion and per-capita GDP of US$500. The potential positive impact of the Mozambique LNG Project and its projected annual revenues —a figure equivalent to a decent percentage of the country’s GDP—cannot be overstated.
The economic benefits are only the start. Starting with new infrastructure, the positive social impacts will resonate broadly. Close to the area where the LNG processing plant, a new community is already taking shape with a hospital, schools and a police station. The plant will require the education of technicians and other local staff.
Through the Mozambique LNG Project, Mitsui can help the economy of Mozambique grow in a stable and sustainable way, at the same time as providing the world with a stable and sustainable supply of energy. This is a twofold mission that Mitsui is proud to take on.