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Coronavirus, gas slump put brakes on Exxon's giant Mozambique LNG plan

Reuters--Exxon Mobil is likely to delay the greenlighting of its $30 billion liquefied natural gas (LNG) project in Mozambique as the coronavirus disrupts early works and a depressed gas market makes investors wary, six sources told Reuters.

Top U.S. oil and gas company Exxon said on Tuesday it was evaluating "significant" cuts to capital spending and operating expenses. Energy firms worldwide have slashed spending this month as oil prices plummeted to 18-year lows after global travel curbs and reduced economic activity destroyed demand.

The coronavirus pandemic is forcing delays to projects worldwide. Qatar, the world's largest producer of liquefied natural gas (LNG), is delaying a big expansion in which Exxon is a major partner.

The Rovuma LNG project, which will produce from a deepwater block off Mozambique containing more than 85 trillion cubic feet of natural gas, was expected to get the go-ahead in the first half of 2020.

A further three sources said the pandemic is disrupting work on the project to such a degree that FID before the second half is unlikely.

Any delay would leave Exxon's project further behind rival Total TOTF.PA, which took FID last June on its neighbouring project.

Exxon might be left with no choice.

"COVID-19 is affecting guys going into Mozambique, it's affecting Chinese and Korean financiers, and clearly you've had the arse drop out of the oil market," said a source with knowledge of the project.

Rovuma LNG is managed by Mozambique Rovuma Venture, a joint venture owned 35.7% each by Exxon and Eni ENI.MI with the remaining stake of 28.6% held by China National Petroleum Corporation (CNPC).

LNG prices LNG-AS hit a record low of $2.7 per million British thermal units (mmBtu) last month, and Rovuma requires an average price of $7 per mmBtu throughout its life to be profitable, according to Bernstein analysts.

Another source with knowledge of internal discussions said with the energy outlook uncertain and LNG supplies set to rise sharply by 2025, some of the project partners want to "cool Exxon's heels" and delay.

China's CNPC did not respond to Reuters' request for comment and Eni declined to comment.

Mozambique's state oil firm ENH, Galp Energia GALP.LS and KOGAS 036460.KS, which each have 10% stakes in the project, either did not provide a comment or referred Reuters to Exxon.

EARLY WORKS HIT

Exxon has already committed to $500 million in initial investment, and FID is the next stage in funding based on which banks can extend lines of credit.

Many hail from countries that have been hit hard by the coronavirus and have put in place travel restrictions. Mozambique has imposed a 14-day quarantine for those entering the country.

That has left key personnel unable to reach the site.

"It seems as though they are electing to postpone some of the early stage works and contracts for now," another source familiar with the matter said. "I doubt we can expect their FID before the end of 2020."

(Reporting by Emma Rumney and Helen Reid in Johannesburg, Stephen Jewkes in Milan, Ron Bousso in London and Jessica Jaganathan in Singapore; Additional reporting by Jane Chang in Seoul, Muyu Xu in Beijing, Victoria Waldersee in Lisbon, and Gary McWilliams in Houston; Editing by Simon Webb, Veronica Brown and Daniel Wallis)


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