How does a first-world enterprise commercialize natural resources from a developing nation while ensuring that the undertaking will be a win-win for all sides? That was the challenge facing Anadarko Petroleum Corporation after it discovered a huge basin with trillions of cubic feet of natural gas in the Cabo Delgado Palma region of Mozambique. As one of the world's largest independent oil and natural gas exploration and production companies – with 2.79 billion barrels of oil equivalent of proven reserves at year-end 20131 – Anadarko wanted to develop and bring to market liquefied natural gas (LNG) in Mozambique by building several large plants.
This project would require a significant commitment spanning several decades so Anadarko needed to forge a strong partnership with the Government of Mozambique. The government saw this as a historic opportunity to benefit the population of Mozambique, which consists primarily of subsistence farmers with a low standard of living, by generating jobs and industrial growth that would drive long term prosperity.
As a result, Anadarko's immediate objective was to help Mozambique's government understand exactly how LNG commercialization could benefit the nation — exploring the issue from multiple angles and setting realistic expectations. LNG development could create new jobs and lead to numerous spin-offs or "mega-projects" that would provide opportunities for Mozambique's small to medium sized enterprises (SMEs). Yet the costs of discovering and commercializing the LNG alone would amount to billions of dollars. Additional costs of developing the nation's transportation and electrical infrastructure and training the workforce meant that new mega projects would require government support.
Upon request from the Mozambique government, Anadarko decided to sponsor a third-party study that would assess the industrial, commercial, labor and infrastructure conditions necessary for successful LNG-based economic development of the nation. This study would expand on an earlier report by ICF International and the World Bank. Given a deadline of only 30 days to complete the new research and analysis, Reynaldo Saludares, Commercial Advisor to Anadarko, turned to S&P Global.
Leveraging Multi-Disciplinary Expertise
Anadarko's team asked S&P Global to specifically research and analyze the potential for gas based projects to support SME development and job creation, while explaining what investment and infrastructure would be required. The scope of the study required contributions from many disciplines — from chemical and energy experts to specialists in the political and economic realities in Africa to analysts with in-depth knowledge of transportation and infrastructure.
Anadarko selected S&P Global, said Saludares, because "S&P Global is one of the few organizations with the capabilities and resources to pull all of this expertise together into a single project team."
Some have made comparisons to Trinidad and Tobago because they feel like they most represent where they're at and where they could be. The report showed how successful development in those nations was accomplished.
Reynaldo Saludares,
Commercial Advisor, Anadarko Petroleum
S&P Global experts were already recognized as independent, world-class authorities with deep understanding of Africa's socio-economy and risks and had consulted on similar LNG, power, and gas master-plan projects. Anadarko also had first-hand experience working with S&P Global on a previous study on gas monetization.
Chemical took the lead on the study and pulled together a multi-disciplinary team that included experts from Energy, Economics and Country Risk (ECR) and S&P Global Supply Chain. This team worked closely together throughout the study's development to provide analysis that was not based on standard assumptions about a sector, but offered insights adjusted for realities on the ground in Mozambique. Their convergent findings included:
- Evaluations of the market, financial, and socio-economic impact of various mega-project options – including methanol, power generation, fertilizer, and LNG sales to local and regional markets;
- Projections of cash flows, capital, and labor requirements for each mega-project;
- Assessments of how well existing infrastructure (e.g. electricity plants, railroads, and ports) could support the mega-projects; and
- Explanations of best practices for attracting foreign direct investment; and estimated the impact of the mega-projects on the local SMEs.
Sharing Insights and Building Trust
Reaching a long-term agreement regarding development of large gas reserves in Mozambique required Anadarko to build trust with the government. This was especially true because previous large-scale projects have provided mixed results in terms of benefitting Mozambique. By sponsoring an independent study of the LNG project's benefits and potential issues by a credible third-party – and avoiding any involvement in the research and analysis – Anadarko ensured that its findings would be seen as objective and trustworthy.
This approach was directly beneficial to Anadarko's leadership team. The S&P Global study supported the notion that Mozambique's reservoir of natural gas can contribute to development of various mega-projects outlined in the World Bank ICF plan, given the right commercial environment. It assured Anadarko decision-makers that there is enough gas to support the mega projects without hindering development of the LNG commercial opportunity.
For the Mozambique government, the S&P Global report that Anadarko had sponsored has provided valuable perspective. One way it accomplished this result was by comparing the Mozambique project to the experiences of Trinidad and Tobago. Thirty years ago, Trinidad and Tobago were in a similar situation. At that time, the country had LNG that it wanted to use to develop mega-projects. Today, the nation has methanol and ammonia plants in operation.
Said Saludares, "Some have made comparisons to Trinidad and Tobago because they feel like they most represent where they're at and where they could be. The report showed how successful development in those nations was accomplished."
In this report, the Government of Mozambique can see clearly delineated a series of steps that it will need to take in order to proceed with mega-projects related to the LNG opportunity. These steps include making conditions favorable for foreign investors; building up the nation's infrastructure, including railroads and ports; improving education, literacy, technical training and business management skills for the local workforce; and preparing for an influx of workers from other nations because they don't have the resources in-country for development.
Looking Ahead to the Future
"The government recognizes how big the LNG project can grow and how quickly it can grow." As Saludares noted, "The government also realizes this major project won't happen overnight."
The Anadarko team believes that their decision to sponsor the S&P Global study helped advance discussions with the Mozambique government – providing insights that will support future policy decisions, discussions with investors and dialog with project sponsors.
Said Saludares, "We've worked to earn the trust of the Government of Mozambique. We have a shared vision to see this project succeed and put Mozambique on the map as an important source of energy."
1 http://www.anadarko.com/About/Pages/Overview.aspx
