By Robert Sullivan — Exclusive to Gas Investing News

Fresh Gas Discoveries Lure LNG Leader Shell to East Africa

A pair of significant discoveries over the past couple of weeks, and an already giant field under the operation of Anadarko Petroleum Corp. (NYSE:APC), have proven enough to lure the biggest name in liquefied natural gas (LNG) to East Africa: Royal Dutch Shell plc (LSE:RDSA)

Eni S.p.A. (NYSE:E) announced on February 15 that it had made a second “giant” gas discovery close to its Mamba South 1 prospect in the Area 4 offshore block off the coast of Mozambique.

The company indicated that a well at its nearby Mamba North prospect had hit 186 meters of gas pay, adding an estimated 7.5 trillion cubic feet (tcf) to its reserves in the Area 4 block, bringing total reserves to 30 tcf.

Two days later, Statoil ASA (NYSE:STO) announced that it found gas in a block off the coast of Tanzania. The Norwegian company, which was drilling at its offshore Zarafani prospect with partner ExxonMobil Corp. (NYSE:XOM), later confirmed that the find could hold as much as 5 tcf.

Following the two finds, Shell lodged a $1.6 billion bid for Cove Energy plc (LSE:COV), the owner of an 8.5 percent stake in the Area 1 offshore block operated by Anadarko that is estimated to hold as much as 30 tcf of gas.

Shares in the Irish company jumped by just over 25 percent in the immediate wake of the announcement, with the offer price tendered by Shell representing a 26 percent premium on the average price of shares in Cove over the preceding five days.

LNG export plans gathering speed

Shell’s interest in the increasingly enticing prospects being turned up along the East African coast carries significant weight given the company’s prominence in the global LNG trade – joint ventures involving Shell supplied 30 percent of global LNG volumes last year.

Frank Harris, head of Global LNG Consulting at Wood Mackenzie, told the Financial Times on Wednesday that “East Africa is one of the next big things in LNG, and it’s inconceivable that Shell wouldn’t have a position in it.”

Eni has already begun discussing plans for up to three LNG trains based on its finds alone, and should Shell succeed in its acquisition of Cove, conversations on the development of multiple LNG terminals in East Africa are likely to proceed in earnest.

“We’re a natural partner in that project,” Shell CEO Peter Voser said in an interview on Wednesday, addressing the possibility of at least two LNG export facilities in the region.

The proposed facilities would be designed to target Asian markets, where demand for LNG is growing at almost 20 percent per year.

Shell preparing for a bolder move into East Africa?

While acquiring Cove would give Shell a foothold in the emerging offshore East African gas scene, some analysts believe the transaction is merely a precursor to a more determined move into the area.

Speaking to Bloomberg on Friday, Alejandro Demichelis, an analyst at Bank of America, remarked that Cove is “too small for a company the size of Shell with ambitions and expertise in operating large scale LNG developments.”

And with both Anadarko and Eni having indicated a willingness to sell stakes in their offshore Mozambique holdings to share costs and reduce risks, there appears to be a window for Shell if it is willing to take on a larger position in the region.

Shell is thought likely to succeed in its bid for Cove, as the Irish company has reportedly been canvassing for offers since January in order to capitalize on its piece of the Anadarko discovery.

What Shell’s next move will be if and when it completes the purchase of Cove remains unclear, but Jonathan French, a spokesperson for Shell, revealed on Wednesday that the company is “assessing opportunities” for further expansion in Mozambique.

 

Securities Disclosure: I, Robert Sullivan, hold no direct investment interest in any company mentioned in this article.