Huge offshore natural gas resources are to be processed onshore into liquefied natural gas (LNG) for exports mostly to the Far East.
A fortnight ago, Islamist militants overrun and attacked the coastal town of Palma located at the north-eastern tip of the country killing dozens of people.
The town is in the vicinity of a new LNG project owned by a consortium led by Total.
In February last year, I described in this column major offshore natural gas developments taking place in Mozambique, a new upstream investment destination attracting participation by major global oil firms (ExxonMobil, Total and Eni).
Huge offshore natural gas resources are to be processed onshore into liquefied natural gas (LNG) for exports mostly to the Far East.
A fortnight ago, Islamist militants overrun and attacked the coastal town of Palma located at the north-eastern tip of the country killing dozens of people.
The town is in the vicinity of a new LNG project owned by a consortium led by Total. The area remains in disarray with populations displaced. Total has postponed the resumption of construction works that had been suspended three months earlier due to insecurity.
Were the attacks a surprise? Over the past two years, one could sense from media reports a creeping emergence of foreign supported Islamic resistance in that region since LNG investments were announced. This is a repeat story of similar Islamic movements in several other parts of Africa.
For whatever reason, Mozambique authorities appear to have downplayed the threat, probably unsure how to exactly approach and fix the emerging insecurity. Signals from foreign intelligence all along pointed to imminent troubles.
It appears as if the government is unable to immediately provide assurances of sustainable security to foreign LNG investors who place security and safety of their employees and operations at the top of their corporate policies.
The recent incidents are a negative game-changer for the natural gas sector in Mozambique and going forward a lot will be at stake for its economy.
Ongoing committed projects are most likely to remain suspended until sustainable security guarantees are provided. For the ExxonMobil consortium, which is yet to confirm its final investment decisions (FID), it will likely take longer to commit FIDs. The business and operating model of the ExxonMobil LNG joint venture is like Total’s and will involve the construction of processing plants in the same region under Islamic insurgency.
Interestingly, the ongoing LNG developments are in the same Rovuma Basin immediately across the border with Tanzania, where investment decisions for similar offshore LNG projects are yet to be committed. Likely, the two countries will jointly address the insecurity before it becomes a cross-border challenge, as it is most likely to happen. Observations elsewhere indicate that Islamic insurgency can be contagious across borders.
Experience elsewhere has shown that for any government, insecurity associated with Islamic insurgent groups is a difficult arena to walk. It is best addressed early and swiftly before it develops deep roots in host communities. And for any country, including Mozambique, the bankable reality is that investments and insecurity are mutually exclusive.
Private investments shun insecurity, a critical element in country-risk assessments by investors.
In eastern Africa, Mozambique has been attracting the most investment interest by major oil companies due mainly to its huge amounts of confirmed offshore natural gas deposits, nearness of Mozambique to the LNG markets in the Far East, and above all its oil and gas regulatory and fiscal frameworks deemed attractive to investors.
This is the wrong time for Mozambique to get into insecurity problems. This is the time when major oil companies are reassessing their long-term investment strategies and priorities. The Covid-19 pandemic has forced oil companies to re-prioritise and downsize their upstream oil and gas capital spending due mainly to reduced demands and price collapse.
The insecurity factor may prompt the relegation of Mozambique investments down the priority ladder.
Further, there are new LNG investment plans by traditional oil and gas countries (the US, Qatar, Russia) to step up LNG production and exports mainly to the Far East and Europe. The incremental LNG supplies will be a threat to greenfield investments in Mozambique and elsewhere. There is also the stepped-up push for renewable energy that will likely reduce demands for LNG.
Yes, this is the wrong time for Mozambique to be caught up in an Islamic insurgency that is potentially difficult to reverse. Wrong time also because other global energy happenings may prompt de-prioritisation of Mozambique if quick security solutions are not in sight.
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