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Mozambique is walking an LNG tightrope

Governments in Africa have a penchant for operating in hubris. This has often led to bad decisions. In Mozambique, the discovery of liquefied natural gas (LNG) has sent the government into a frenzy owing to an anticipated gas-related economic boom.

Although production is far from guaranteed, the government has promised to utilise non-existent revenues to settle controversial debts based on future projections of a windfall. Going by central bank estimates, the country is staring at a staggering $96bn bonanza. “Mozambique has already spent some of the anticipated gas revenue windfall, at high interest, and this gas bonanza may now never happen,” says Robert Besseling, risk and intelligence firm Pangea-Risk chief executive. The effect is negotiations for more restructuring due to non-payments and increasing likelihood of sovereign default.

Tragically for Mozambique, LNG is unravelling as a concoction whose main ingredients are hope and despair. Hope in the sense that the discovery of around 150tr cubic feet (tcf) of proven natural gas reserves could propel an economic renaissance for the impoverished Southern Africa nation. Mozambique is one of the world’s poorest countries, with a gross domestic product (GDP) per capita of $500 and with about 45 percent of the country’s 30.8 million people living below the poverty line.

However, the International Monetary Fund (IMF) reckons LNG can be a game changer for the country’s economic transformation in terms of sales, taxes, royalties and dividends. At current LNG prices of $8.50 per million British thermal units, the country can generate $12bn annually by exporting 30 million tons from its three ongoing projects.
The massive revenues will not only help Mozambique tackle the debt conundrum but also bring stability in the fiscal regime and could push GDP growth to double digits. Ripple effects of the gas industry have potential to spur other sectors, effectively lifting many out of poverty.

Fuelling conflict
There is despair in the sense that Mozambique is fast joining the league of African nations grappling with a ‘resource curse.’ The onshore LNG project in the Cabo Delgado province being implemented by French multinational Total, at a cost of $20bn, has fallen foul of an Islamic State insurgency uprising that is not only threatening to tear the country apart, but could also fuel an economic burst.

year,approximately 30,000 people were forced to flee the town of Palma with dozens reportedly killed by the Islamic State (ISIS)-linked armed group known as Al-Shabab. “The ongoing and intensifying insurgency in Cabo Delgado has undermined the commercial viability of Mozambique’s LNG industry,” notes Besseling. He adds the ‘Battle of Palma’ has ultimately shattered the country’s dream of becoming a major LNG export hub in the near to medium term.

In April, Total issued a force majeure on the project and went on to withdraw personnel from the Afungi site. The move throws the project, one of three LNG projects being implemented in the country and the only one that has achieved significant progress, into jeopardy. Before invoking a force majeure, Total had promised to ship the first LNG cargoes in 2024 from its project whose capacity stands at 13.1 million tons per year.

“The schedule for this project has now slipped significantly,” notes Simon Nicholas, analyst at the Institute for Energy Economics and Financial Analysis. He adds that unless the Mozambique government manages to address the security issue, Total could take the drastic decision of walking away. So far, the government’s promise to set up a 25km perimeter around the Afungi peninsula site by deploying troops has not deterred the attacks. “The renewed violence will cause significant uncertainty, which is no friend to major investments,” he observes.

Total can take a cue from US giant ExxonMobil, which is leading the $30bn Rovuma LNG project. The company is seriously weighing the option of abandoning the project after repeatedly pushing back the signing of the final investment decision for its 15.2 million tons per year project.

The US-based Armed Conflict Location & Event Data Project (ACLED) estimates that more than 2,600 people have been killed and 700,000 have fled their homes since the insurgency began in 2017. In the latest attack in March–April this approximately 30,000 people were forced to flee the town of Palma with dozens reportedly killed by the Islamic State (ISIS)-linked armed group known as Al-Shabab. “The ongoing and intensifying insurgency in Cabo Delgado has undermined the commercial viability of Mozambique’s LNG industry,” notes Besseling. He adds the ‘Battle of Palma’ has ultimately shattered the country’s dream of becoming a major LNG export hub in the near to medium term.

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