ENI of Italy Considers Large Gas Project in Mozambique

The companies will likely publish documents in the next few days soliciting interest from international contractors in the project, according to an oil industry official who asked not to be named because he was not authorized to speak publicly.

Groups led by ENI and Anadarko Petroleum, the independent American producer, have made major gas discoveries in two separate blocks in the waters off Mozambique in recent years. If the oil companies succeed in exporting the gas in the quantities they have discussed, Mozambique would become one of the world’s gas powers. Much of the gas, which would be supercooled and exported on ships as liquefied natural gas, is likely to go to India and other Asian countries, which are easy sailing distance from Mozambique in East Africa.

Thomas Longford, a banker at UBS, which has been involved in sales of stakes in the Mozambique discoveries, said on Wednesday at the Oil and Money Conference in London that all of the gas was likely to be sold at premium oil-indexed prices. The International Herald Tribune, owned by The New York Times Co., is one of the conference’s organizers.

ENI and Anadarko are in the early stages of designing an onshore liquefied natural gas facility in a remote area called Afungi in Cabo Delgado Province in the northern part of Mozambique. The facility will use gas from the fields in their two blocks that are geologically connected.

The onshore LNG plant is likely to be one of the largest in the world with, over time, at least 10 units, with a capacity of five million metric tons each. The potential floating operation would be a small fraction of the size, but it reflects a major new push by the industry to find cheaper and more efficient ways to produce the natural gas that is locked under the sea in remote areas.

Although building the onshore facility is considered relatively simple from a technical point of view, the location in Mozambique, which until now has only had a small oil and gas industry, will create many obstacles.

All of the equipment and a wide range of skilled personnel would need to be brought into the country and to the site, which is not served by roads. The resettlement of about 3,000 people living in the area would also need to be negotiated. About 10,000 workers would be on the site at the peak of the construction phase.

If things go smoothly, ENI and Anadarko expect gas to begin flowing around the end of 2018. Total development costs for the drilling and onshore export facilities are estimated to be around $50 billion.

A floating facility costing several billion dollars would provide ENI with an alternative export route that evades a lot of onshore hurdles. In floating LNG, the gas goes directly from the wells to the vessel, which is a very large boat bristling with processing equipment. ENI would export from the southern part of its block known as Area 4.

ENI is considering a 2.5 million metric ton per year facility. ENI’s partners include CNPC and GALP of Portugal.

A floating plant “could offer an earlier route to initial but smaller scale monetization while the larger and more complex land site is developed,” said Peter Hutton, an analyst at RBC Capital Markets in London.

Perhaps the biggest advantage is that the boat and its gear could be built in a world-class shipyard, rather than in a difficult location like Mozambique. For example, Royal Dutch Shell is building such a vessel for its Prelude project off Western Australia in South Korea. Prelude is likely to be the world’s first operating floating LNG facility.

Shell, which wants to roll out a floating LNG vessel every year, would like to participate in Mozambique, but it has so far been unable to find a stake for sale at a price it considers reasonable. Last year, Shell was outbid for Cove Energy, which had a stake in Anadarko’s area, by PTT Exploration and Production of Thailand.

ENI Announces Major Gas Find Off Mozambique

Four of the five largest oil and gas discoveries in the world this year have been made off Mozambique, including three earlier finds by Eni, according to the consultants Wood Mackenzie in Edinburgh. These discoveries have the potential to put Mozambique, which previously had little oil and gas production, in the gas-exporting big leagues with countries like Qatar and Australia.

Although Eni is ranked only about eighth among Western oil companies in terms of output, with about 1.7 million barrels a day — about half the size of BP or Royal Dutch Shell — the company is a big natural gas player in Europe. And Eni is emerging as a leader in Mozambique exploration.

The newest finds, from the sixth and seventh wells that Eni has drilled there, add an additional six trillion cubic feet of gas to what the Italian company has already found. That is a large amount of gas but relatively incremental. It raises the total to 68 trillion cubic feet that Eni now says it has found in its Mozambique exploration concession, called Area 4, where Eni has a 70 percent shareholding.

Three other shareholders — Galp Energia of Portugal, Kogas of South Korea and ENH, Mozambique’s national oil company — each hold 10 percent.

The total amount discovered is equivalent to about 12 billion barrels of oil. A high proportion of the gas is likely to be recoverable, Eni said.

According to Eni’s estimates, its share of the Mozambique discoveries so far could be worth around $15 billion.

The Eni finds coincide with an effort by the company’s chief executive, Paolo Scaroni, to focus more on exploration and production, and less on transmission of natural gas in Italy. When you make a business of exploration and are successful, he said, “you make a huge amount of money.”

Eni first found gas in Mozambique last year, closely following a discovery by Anadarko Petroleum of the United States, which right now is Eni’s main competitor in the region.

The two companies are now negotiating with the government on a development plan.

The most profitable market for the Mozambique gas is likely to be exports to Asia as super-cooled liquefied natural gas, or L.N.G., on special ships. The Web site of the Instituto Nacional de Petróleo, the country’s energy regulator, has a presentation that indicates that as many as 10 L.N.G. conversion plants could be built, which would make Mozambique a significant player in the world gas market.

Mr. Scaroni said there could also be a role for an offshore floating L.N.G. conversion plant, a technology that Royal Dutch Shell is now developing for use off western Australia. Shell recently tried to buy Cove Energy, which had a small position in the Mozambique discoveries, but was outbid by Thailand’s PTT Exploration and Production.

Eni is not currently a major player in L.N.G. and may need help with the huge capital costs for developing the gas, which Mr. Scaroni put in the “tens of billions” of dollars.

Because Anadarko is not an L.N.G. specialist, either, it is widely thought in the industry that both companies will bring in partners.

Mr. Scaroni said he had been talking to potential partners “but we are fairly reluctant to strike a deal with anybody until we finish our exploration.”

A recent report by Bernstein Research says that Mozambique will be “Eni’s most significant project, although we do not expect production until 2019 at the earliest.”

The gas discoveries off Mozambique are contained in sandstone deposits in what were ancient river canyons, similar to those off West Africa and elsewhere.

What makes the Mozambique discoveries particularly rich is that the sandstone layers containing the gas are thick — as much as 300 meters, or nearly 1,000 feet — indicating sizable reserves.

“Mozambique is a very positive exploration story,” Mansur Mohammed, a Wood Mackenzie analyst, said. “We are talking about an unprecedented high exploration success rate that transformed the outlook for the region.”

This article has been revised to reflect the following correction:

Correction: December 5, 2012

An earlier version of this article misspelled the first name of ENI’s chief executive. He is Paolo Scaroni, not Paulo.