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Can Mozambique Defend Its Crucial Gas Assets?

Mozambique has been rightly considered one of the most promising new frontiers of gas production in the world, the Rovuma Basin that is located along the border of Tanzania and Mozambique is assumed to hold up to 150 TCf and most of it in Mozambican territorial waters. Yet before our very eyes Mozambique’s Cabo Delgado province, home to the Mozambique LNG project and potentially many more, is spiraling out of control under the constant onslaught of insurgents. The intoxicating feeling of a gas bonanza lurking around the corner, intertwined with sectarian overtones in a predominantly Christian country, have engendered one of Africa’s terrorist hotspots. Unfortunately for Mozambique and eventually for its population, too, the Islamic State-linked insurgency has the potential to scupper the entire nascent oil and gas industry in the country. 

According to UN estimates more than 700 000 people have been displaced by the conflict since October 2017 and some 2 600 had been killed already, with the toll increasing by the day. Although Cabo Delgado is not as clear-cut a Muslim province as its western neighbour Niassa – in Cabo Delgado some 53% of the population adhere to Islam whilst 39% is Christian – it is located next to the bountiful shelf of the Indian Ocean and thus presents a much more interesting target for Islamist insurgents. Mozambique currently wields 3 ambitious LNG projects all of which were destined to be commissioned in the upcoming years – Mozambique LNG (12.88mtpa, 2023), Coral South FLNG (3.4mtpa, 2023), Rovuma LNG (15.2mtpa, 2024). The northernmost of the three, Mozambique LNG has been at the epicentre of the Cabo Delgado insurgency. 

Following a series of attacks, Total has stopped construction works in December 2020 but still maintained staff at the site. Literally a couple of hours after the French major announced its intent to restart works in late March 2021, the city of Palma was run over by Ansar al Sunna (most likely a tragic coincidence), the shady militant group that has no purported aim or leader. There have been disputes whether the Islamic State can be linked to the Palma attacks, with some claiming that the polychrome composition of the gunmen (from Tanzanians to Somalis) renders it impossible to pinpoint the culprit exactly. Palma is the closest city to the Afungi LNG park where the liquefaction terminal will be located, being the main logistics hub. 

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Following a 2-week fight for the city, the destroyed city was retaken by the Mozambican Army and the manifold private security companies participating in the battle. Apart from the insurrectionists themselves, another problem is that the underequipped Mozambican army is also far from being on top of its game, reportedly looting the city of Palma after it had freed the city in early April 2021. As insurgents have generally gotten closer and closer to the Afungi LNG park and there seems to exist very little guarantee that the Palma Attacks will not see a repetition, Total has now evacuated all its staff. This makes sense, considering that local reports insinuate that foreign contractors working on Mozambique LNG were targeted deliberately by the insurgents (2 contractors have died in the Battle of Palma).  Whilst there has been no official communication on Mozambique LNG running into delay with all the insurgency-triggered downtime, perhaps due to the operator company (Total) not knowing how long this period of idleness will last in the end. According to initial plans, it should be commissioned in 2024. Almost all of Mozambique LNG’s production capacity is already covered by long-term offtake agreements with international firms like Shell, CNOOC, EDF and the Tokyo Gas/Centrica JV, meaning that prospective LNG cargoes have already found their customers but are jeopardized by the breakdown of Mozambique’s security. Although rarely talked about, Rovuma LNG has also stopped construction works following the Cabo Delgado attacks, implying that Mozambique LNG’s delays will have a domino effect on others, too. 

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The main interaction to follow will be between Mozambique LNG and Rovuma LNG, operated by Total and ExxonMobil, respectively. Both use Palma as their logistics base, or rather would use in the case of Rovuma LNG as the project is still not sanctioned. It was assumed that Rovuma, whose price tag would be around $27-30 billion, would see its FID come into place in 2019 yet shaky economics and the COVID slump have repeatedly pushed the decision further out on the timeline. Now, with Mozambique LNG most likely out for the entire year in terms of construction, Rovuma LNG is highly likely to be postponed again. Against this background, there is virtually no possibility of ExxonMobil sticking to its initial 2022 commissioning objective with Rovuma LNG, the US major can consider itself lucky if it can meet the deadline of 2026/2027. 

Where does this leave Mozambique in general? It is imperative that Mozambican security forces secure the 25-kilometer cordon around the Afungi LNG park (the city of Palma is 6-7km from the liquefaction terminal). Moreover, the army should also guarantee the same for Pemba, a port city to the south of Palma which has been the main logistics hub for the Coral South FLNG project – even though the offtake will be carried out from an FPSO, Coral South runs the same construction supply risks (not to speak of possible maritime attacks). Considering that Mozambique LNG is only 21-22% complete as of year-end 2020, the sooner Maputo manages to organize a military force strong enough to fend off any future attacks the smaller the damage from postponing the project – as things stand currently, there is no way Total can commission it in 2024 as the French major intended to originally. 

By Viktor Katona for Oilprice.com

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