Total declares FM on Mozambique LNG project weeks after shutdown
London, (Quantum Commodity Intelligence) - Oil major Total has declared force majeure on its $20-billion liquefied natural gas plant in Mozambique amid security concerns, the company announced in a statement Monday.
The company has withdrawn all personnel following what it called the “evolution of the security situation in the north of the Cabo Delgado province” raising questions about other LNG assets in the southern African state.
“Total confirms the withdrawal of all Mozambique LNG project personnel from the Afungi site. This situation leads Total, as operator of Mozambique LNG project, to declare force majeure,” the company said.
Dozens of civilians were killed in an attack last month by Islamic insurgents in Palma, leaving Total to suspend work on the project on March 27.
Today’s announcement suggests a return to normal operations remains possibly months away, leaving LNG prices to spike last week to levels not seen since record highs achieved in January.
The declaration will put pressure on the government to do all it can to ensure the safety of foreign energy contractors, given the country has several LNG projects worth in excess of $100 billion – facilities that it relies on for foreign income.
Alongside Total, energy producers ExxonMobil and ENI are investing in LNG facilities in the country to supply predominantly Asia with energy.
Mozambique had pinned its economic hopes on the colossal natural gas deposits discovered a decade ago — but an escalating Islamist insurgency threatens to pull the rug from beneath a surge in private investment.
In late March, an armed Islamist group loosely affiliated with ISIS and known locally as Al-Shabab — not to be confused with the Somali militant group of the same name — attacked the gas-rich town of Palma in the country’s northern Cabo Delgado province, inflicting mass civilian casualties and displacing tens of thousands.
The attack came within hours of French energy giant Total announcing that it was resuming operations at its Mozambique Liquefied Natural Gas (LNG) project, a $20 billion facility under construction in the nearby Afungi Peninsula.
In total, up to $120 billion is at stake on LNG projects across the country, according to Standard Bank.
The International Monetary Fund expects GDP in Mozambique to grow 2.1% in 2021, with inflation projected at 5.3%. But Standard Bank highlighted in a recent note that the escalation towards guerilla warfare could erode the benefits of the LNG projects.
“While the long-term growth outlook remains largely positive, supported by LNG investments, armed conflicts constrain the prospects for more inclusive growth,” it said.
Fiscal hit
Along with the humanitarian crisis triggered by the insurgency — with the United Nations World Food Program warning on Tuesday that almost a million people now face severe hunger in the north of the country — the attacks also pose an existential threat to government finances.
“The longer the conflict pushes back the completion of the planned LNG projects, the longer it will take for the debt-ridden Mozambican government to earn revenue from gas exports,” said Gerrit van Rooyen, economist at NKC African Economics.
Total has now withdrawn all staff from its Afungi site, but van Rooyen suggested this could be a tactic to pressure the government into beefing up security around the Afungi complex and accepting foreign help, rather than a permanent exit. Total declined to comment when contacted by CNBC.
President Filipe Nyusi’s administration has relied primarily on private security contractors to assist in defense efforts, while restricting access to aid workers and journalists.
Alongside Total’s LNG project, both U.S. energy major ExxonMobil and Italy’s Eni are leading separate energy projects in the country, all of which are critical to Mozambique’s fiscal future.
The delayed start date of LNG exports is expected to tangibly reduce government revenue.
