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Mozambique LNG sector braces for delays amid escalating violence

French energy major Total has been forced to suspend operations at its liquified natural gas (LNG) project in northern Mozambique for the second time this year, after a fresh attack by insurgents.

According to harrowing reports from various news outlets, dozens of local and foreign citizens have been killed in an assault by extremist Islamic State-linked militants on the town of Palma in the last week.

Meanwhile, The Guardian reports that as many as 60 people – mostly foreigners – are still missing, after a convoy of 17 vehicles tried to make an escape from Hotel Amarula on Friday.

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LNG workers were among nearly 200 people who reportedly sought shelter in the hotel awaiting rescue, French news agency AFP said on Saturday.

While Total told the Financial Times none of its workers were among the victims, the paper reports the ongoing risk of violence has led the company to reduce its workforce on the LNG project at the nearby Afungi site “to a strict minimum”.

The suspension marks yet another setback for Total’s project, which had only recently started to resume operations following a decision to evacuate workers from the site in January due to heightened security risks.

Such delays throw into doubt the slated 2024 production date of the project, and come less than a year after the company signed a bumper financing package worth nearly US$15bn with a cluster of commercial banks, export credit agencies (ECAs) and the African Development Bank (AfDB).

A spokesperson for the Japanese ECA, the Japan Bank for International Cooperation, tells GTR that it is “closely monitoring” the security situation in Mozambique, in cooperation with the stakeholders of the project, including the operator, the sponsors and an external security consultant.

They note that the recent violence could potentially impact the “timeline of the construction work”.

Robert Besseling, founder and CEO of intelligence company Pangea-Risk, says it is currently unclear just how long the latest pause on development will last, though he notes any resumption could rely on the government increasing its intervention in the region.

“There is no timeline for when operations will resume. Everything will now hinge on negotiations with the government, which will have to deal with the counterinsurgency, and assure Total and other LNG personnel that they are safe in Cabo Delgado province,” he tells GTR.

The insurgency has been ongoing since 2017, with data from the Armed Conflict Location & Event Data Project showing that over 2,600 people have been killed and nearly 700,000 displaced by the violence.

However a report released by Pangea-Risk in mid-March – prior to the latest attack on Palma – notes that there was a “significant expansion and intensification” of the Islamist insurgency last year.

Meanwhile, in light of the recent attack on Palma and convoys evacuating LNG personnel, Besseling suggests militants have shown a willingness – for the first time – to openly attack LNG assets in the region.

Previously, he notes, insurgents had likely been keen to avoid global media attention and an international focus on their activities.

“There is a clear shift in strategy on the way, which we believe is due to a fracturing of the different insurgency groups…. You could almost certainly expect more attacks on LNG assets and personnel in the immediate future,” Besseling says.


Exxon impact?                                   

As insurgents increasingly target the Cabo Delgado province, home to some 10 trillion cubic feet of natural gas in the Rovuma Basin, analysts say the rising insurgency risks could put Mozambique’s fledgling LNG sector and its economic progress at risk.

A report from Fitch Ratings, released in July 2020, identifies three multi-billion-dollar LNG projects as being vital to the country’s push to start generating significant revenues from the commodity and kickstart its economy.

Alongside Total’s development, Italian multinational Eni’s US$8bn offshore development is slated to start production in 2023, while US energy company ExxonMobil is leading a touted US$30bn LNG venture in the Cabo Delgado region.

The Fitch report says that “the combined capacity of the three projects is roughly equivalent to twice the size of Mozambique’s 2020 GDP”.

But with Total’s project facing delays, Besseling says ExxonMobil could ultimately decide to hold off on making a final investment decision.

The American company previously pushed back last year’s deadline in the wake of declining energy prices, and Besseling notes the security situation may have a bearing on its latest judgement.

“I think it’ll be interesting to see, in the longer run, whether ExxonMobil and backers continue to delay an official final investment decision. Though that type of decision is unlikely to be influenced only by the security situation. It will also consider the negotiation of local contracts with the government, as well as demand for LNG across the world,” Besseling says.

There are suggestions that if ExxonMobil does choose to come to market now, it will likely face steeper costs as a result of the insurgency risks.

Gabriel Buck, managing director at export finance advisory firm GKB Ventures, says that while he doubts ECAs and investors will draw back from the Mozambique LNG sector, costs could be higher for firms on the hunt for financing.

“Any atrocity like this will have an impact on the price of credit, the price of debt, particularly in the short term. In the long term, it has less of an impact,” he tells GTR.


International pressure

With various international companies involved in the LNG projects, the Mozambican government will face increasing pressure to control the insurgency. However, there are longstanding criticisms of the country’s current counterinsurgency approach.

Besseling says the government’s use of its own local security forces and private military companies to date “has not been effective”.

Last year, there were roughly 1,600 fatalities from the conflict, more than double the previous year, according to data from the Armed Conflict Location & Event Data Project.

“There has been a lack of understanding of the insurgency, weak intelligence gathering, and often the counterinsurgency operations have been brutal, heavy handed and targeted the local population,” Besseling adds.

On March 2, Amnesty International released a report documenting extensive human rights violations allegedly committed in Cabo Delgado by the Mozambican security forces, including widespread extrajudicial killings and torture of civilians suspected of collaborating with militants.

While the government has denied these claims and labelled them as propaganda designed to undermine its security forces, Pangea-Risk’s report notes they support “broader observations of dwindling trust in the government”.

Yet Besseling suggests there could be a shift in the counterinsurgency approach, as regional partners and countries such as the US and France monitor the situation closely.

Mozambique’s President Filipe Nyusi has so far shown an unwillingness to accept direct offers of assistance from regional partners, but Besseling says there will be a renewed push for the country to work with foreign peacekeeping forces.

“There will likely be a shift in the counterinsurgency. Countries in the Southern African Development Community will want to intervene in the situation, and send their own peacekeeping combat units,” he says.

At the same time, Besseling adds that countries that have invested in Mozambique, such as France, US and Italy, will “mount pressure on the country’s government for a more multilateral counterinsurgency operation”.

In a sign of this growing international interest in the insurgency, Portuguese news agency Lusa said yesterday that Portugal will dispatch soldiers to Mozambique to train local troops.

The post Mozambique LNG sector braces for delays amid escalating violence appeared first on Global Trade Review (GTR).

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