Mozambique's LNG Dreams Fade Fast

Total's decision to declare force majeure on the $20 billion Mozambique LNG project, a month after a deadly jihadist attack on the nearby town of Palma, will have serious repercussions for Africa's aspiring gas powerhouse (WGI Mar.31'21). The stoppage will delay project start-up by at least a year as multiple contracts -- including with insurers -- are suspended. It may also spell the end of Exxon Mobil's $25 billion Rovuma LNG. Even before the attacks, Rovuma was struggling to make progress due to funding difficulties and concerns about long-term gas demand as decarbonization gathers pace. For the government, the dream of becoming a major LNG exporter is fading fast. Maputo has for the past four years proven incapable of facing down an insurgency in the wider region of Cabo Delgado that has left more than 2,600 people dead and displaced 700,000. The force majeure came as no surprise, as Total had evacuated all remaining staff from the site in the Afungi Peninsula since the attacks began on Mar. 24, leaving it under the exclusive control of the army and security services. The French major said it hoped the government and its regional and international partners would restore security and stability in Cabo Delgado "in a sustained manner," without indicating when workers might return. What is clear is that Total, which signed a vaguely worded security pact with the government last August, no longer trusts Maputo to guarantee safety. Some kind of international support involving the US now looks inevitable. Washington last month designated the insurgents as a terrorist group and has reportedly dispatched special forces to Cabo Delgado. Before the attack, Total had insisted that first LNG was on track for 2024, but this is no longer feasible. Delays also look likely disbursing the $14.4 billion in project funding secured last summer from a group of international lenders, including US Export-Import Bank, with a $4.7 billion commitment, and Japan Bank for Economic Cooperation, with a pledge of around $3 billion. They will be repaid from the proceeds of long-term LNG sales. Lenders remain committed but, like the project sponsors, are alarmed at the region’s descent into chaos. Assuming Mozambique LNG goes ahead, it will produce 13.1 million tons per year from two trains, with most heading east to Asia. Total, which bought Anadarko’s 26.5% interest for $3.9 billion in September 2019, is the only Western member of the consortium. The others are: Japanese duo Mitsui and Jogmec with 10% each, Indian trio Oil India, ONGC and Bharat sharing 30%, and Thailand’s PTT with 8.5%. Mozambique’s state oil company ENH has the remaining 15%. Mozambique’s first and smallest LNG project, the $7 billion Eni-led Coral South, is under less threat from jihadists as it is offshore. First LNG from the 3.4 million ton/yr floating project is due next year, with BP taking the entire output. The future of Rovuma LNG, by contrast, is hanging by a thread. Exxon said last year it would delay a final investment decision on the 15.2 million ton/yr project -- to be built on the same site as Mozambique LNG -- until market conditions improve. Banks, under growing pressure to move away from fossil fuel projects and wary of political risk, are in no hurry to open the purse strings. And in a highly competitive market, Energy Intelligence's Research and Advisory unit believes continued delays could irrevocably erode Rovuma's commercial appeal. Unlike Mozambique LNG, which has firmed up sales and purchase agreements, Rovuma is competing for customers with a plethora of other global LNG projects. The risk has also spread to northern neighbor Tanzania, where plans to build a greenfield LNG plant to monetize offshore discoveries made by Royal Dutch Shell and Equinor look increasingly remote. Paul Sampson, London