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Mozambique Eyes $100 Billion LNG Windfall As It Prepares To Ship Its First Cargo

  • Mozambique has been plagued by terrorism and piracy for many years.
  • The African country is set to ship its first LNG from a floating terminal constructed by Eni.
  • Mozambique could see a much bigger than anticipated windfall as a result of high gas prices.

For years, Mozambique, the world’s 3rd poorest nation, has been eagerly looking forward to reaping the windfall from the discovery of mammoth natural gas reserves off its west coast nearly a decade ago. Last year, experts estimated that the southeast African nation could generate $12bn annually by exporting 30 million tons from its three existing LNG projects by European energy giants. Mind you, back then, LNG prices were hovering around $8.50 per million British thermal units, a fraction of the current $29.35 per million British thermal units meaning the current revenue potential could be much higher.

Unfortunately, widespread terrorism and the growing menace of piracy have constantly held back progress with Mozambique fast joining the league of African nations grappling with a ‘resource curse.’ The security crisis in the northern region of Cabo Delgado had displaced hundreds of thousands of people, created a humanitarian crisis and even forced TotalEnergies (NYSE: TTE) to declare force majeure on its massive natural gas investment in the country.

But the tides have now turned, and Mozambique has managed to get its act together just in time. The country is now poised to ship its first cargo of liquefied natural gas (LNG) overseas at a time when prices have soared to record highs with Europe desperately trying to cut energy ties with Russia. According to ship-tracking data compiled by Bloomberg, the LNG tanker British Mentor, operated by BP Plc. (NYSE: BP), is set to arrive Aug. 24 at a new floating terminal that Italian energy giant Eni S.p.A. (NYSE: E) is completing off Mozambique’s northern coastline.

According to an emailed statement by Eni, commissioning activities at the Coral-Sul FLNG vessel are progressing well, with first exports to be communicated in due course. The Italian company is already planning a second floating export platform in the southern African country that could be completed in less than four years. 

But first, a synopsis of how we got here.

Resource Curse

Back in 2010, Texas-based Anadarko Corp. (now a subsidiary of Occidental Petroleum Corp.) and Italian energy giant Eni S.p.A. announced the discovery of approximately 180 trillion cubic feet of natural gas reserves, equivalent to ~29 billion barrels of oil, in Mozambique’s supergiant offshore basin of Rovuma, immediately catapulting the south African nation to a potential global LNG superpower. As you might expect, there was a stampede by oil and gas majors including ExxonMobil (NYSE: XOM), TotalEnergies, Shell (NYSE: SHEL), Eni S.p.A. and China National Petroleum Corp. (NYSE: SNP)) coming in to stake their claims.  

But it was not long before terrorism and the long tail of the “hidden loans” corruption scandal, in which senior officials had formed state-owned companies that borrowed billions of dollars off-the-books, started to cast a pall on the economy and took a toll on investor confidence.  Mozambique was plagued by a 16-year civil war that ended in 1992, yet resurgent armed conflict remains a major challenge to this day. The root causes, as always, have been underdevelopment and corruption. Over a period spanning more than five years, a notorious terrorist organization that aligned itself to the Islamic State carried out dozens of attacks especially in the Cabo Delgado province. The insurgency killed more than 1,500 people and displaced another 250,000 in the country’s north. 

In 2020, Mozambican President Filipe Nyusi was sworn in for a second term at the top seat. In his acceptance speech, Nyusi emphasized the importance of peace if the nation is to realize its full potential. The president also vowed not to fall victim to the African curse whereby resource-rich nations tend to fare even worse economically than their less endowed peers. Well, we can say that he has achieved his goal--somewhat. Mozambique still has massive security, humanitarian, and economic needs. Some governance reforms have cleared the path for donors to re-engage the state, but accountability remains elusive in many instances. However, the country’s current outlook is far more positive than it’s been in decades, with Mozambique having managed to garner significant international leverage. Intervention from the Southern African Development Community (SADC) as well as military assistance from Rwanda have managed to reverse the insurgents’ momentum in the north. Meanwhile, the World Bank  and the International Monetary Fund have both re-engaged in supporting the economy. Another achievement: for the first time ever, Mozambique has even been elected to a seat on the United Nations Security Council, making its capital Maputo a can’t-miss destination for diplomats looking to win allies and build consensus and in a volatile geopolitical environment.

But the best part: Russia’s invasion of Ukraine has triggered a massive reordering of the global energy economy and made Mozambique’s liquefied natural gas (LNG) assets more appealing than ever.

Related: Half Of UK Households Will Be In Fuel Poverty By January

Mozambique’s LNG is coming into play at a time when tight gas supplies have led to soaring prices in Europe. European buyers are now paying a hefty premium for gas supplies as they seek to end their dependence on Russian gas and are being forced to compete with Asian buyers to secure LNG cargoes ahead of the winter. 

Eni’s $7-billion Coral-Sul project is targeting first exports by October while BP has already inked a deal to buy all of the output for 20 years from Coral-Sul, designed to produce 3.4 million metric tons of LNG. TotalEnergies has announced plans to resume its massive $20 billion project toward the end of the year, with the terminal expected to churn out 13.1 million tons of LNG annually. In addition, ExxonMobil says it will make a final decision for an even larger project in the near future. Meanwhile, the European Union has planned a five-fold increase in financial support to $15 million to fight militants near Mozambique’s gas projects. The EU has already pledged to provide the country's army with an additional 45 million euros ($45 million) of financial support, and has so far given a SADC mission in the country 2.9 million euros of funding.

Overall, one of the world’s poorest countries has a once-in-a-lifetime chance to escape the resource curse if it manages to make the best of this moment. Mozambique has laid out plans to set up a sovereign wealth fund toward the end of 2022, with 50% of the fund’s revenues to be reinjected into the fund while the remaining 50% will go to the government’s budget during the first 20 years of LNG production. Mozambique has the potential to move up the ladder and become a middle-income nation over the next two decades if it plays its cards right.

By Alex Kimani for Oilprice.com

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