Development of the Mozambique Gas Industry - Will Onshore LNG or Floating LNG Production Facilities Most Likely Deliver Profitable Projects for the IOCs?

Abstract Objective/Scope Since 2010 more than 100 Tcf of recoverable gas reserves have been discovered offshore Mozambique. Large gas discoveries that are distant from markets now have 2 different LNG development solutions. The first is the classical onshore LNG production facility and the second is the offshore floating LNG (FLNG) production facility, a comparatively new development solution. This paper examines both solutions for all fields being developed or planned with both deterministic and stochastic LNG price assumptions. Method/Procedure/Process The Rovuma basin now features the Coral South FLNG in production, and the Coral North FLNG and several onshore LNG production facilities are being planned. Gas production profiles and costs including DRILLEX, CAPEX and OPEX are determined for these projects with their foreseen development solutions. Then the same profiles are estimated for the alternative development solutions. Base case deterministic economic analysis is carried out with detailed after-tax cash flows for all projects using both development solutions. Sensitivity analyses allow for calculating tornado diagrams and break-even values. Where appropriate a portfolio analysis is performed to include the effect of being in tax positions with multiple fields. In addition, stochastic random-walk LNG price scenarios are applied for all projects, including alternative development solutions. NPVs are then plotted as cumulative density distributions to determine the probabilities of the projects being economical for the IOCs given the LNG price variation assumptions. Cumulative density distributions are also created for the Government Takes. Results/Observations/Conclusions The calculated cumulative density distributions are skewed S-shaped curves leading to the conclusion that NPVs are log-normally distributed. The most important result is that the probabilities for the projects delivering positive NPV given stochastic LNG price scenarios, and therefore providing a minimum return equal to the discount rate, can be determined and compared with other projects and project solutions. Cumulative density distributions for the Government Takes are also be determined. The strengths and weaknesses of stochastic analysis versus deterministic analysis are discussed. Novelty/Additive Information Pure deterministic analysis with sensitivities is excellent for analyzing the robustness of a project, however when supplemented by stochastic analysis deeper insights are achieved. The novelty of this paper is the application of real project data with two alternative development solutions and then applying stochastic random-walk prices to evaluate the probabilities of being economical. The LNG prices are the most uncertain aspect of an LNG development and have the greatest impact on the economics.