Inside Africa: France Halts Oil Projects In Mozambique In Response To Growing Insurgency
French energy giant Total recently confirmed the suspense of work on a massive $20 billion gas project in northern Mozambique following the latest jihadist assault on a nearby town last month.
“Considering the evolution of the security situation... Total confirms the withdrawal of all Mozambique LNG (Liquefied Natural Gas) project personnel from the Afungi site," the company said in a statement. Total added that it declared a "force majeure" situation beyond its control, a legal concept meaning it can suspend fulfilling contractual obligations. Declaring “force majeure” implies a weighted suspension and allows Total to cancel contractors, resulting in the company pulling out of the country.
“Mozambique was considered the next LNG El Dorado thanks to its large, low-cost resource base and ideal location to supply key demand centers," said Thomas Adolff from Credit Suisse. "But instead it is looking more like...Mozambique no longer playing a big role in the 2020s," he added. Carlos Zacarias, chairman of the institute that governs Mozambique’s energy development, reported in a press conference that Total would not fulfill contractual obligations while the force majeure was in place, yet continued to note that Total had not fully abandoned the project at this point in time.
A March 24 jihadist raid on Palma in Mozambique's northern Cabo Delgado province prompted Total to remove the remaining staff from the natural gas site. The company had already evacuated some workers and suspended construction in January following a series of jihadist attacks nearby.
Foreign oil majors have taken a recent interest in Mozambique, but the new facilities are facing challenges beyond the usual social and environmental risks associated with such projects. An Islamic State-aligned insurgency group has attacked Total’s record-breaking investment in the area, raising questions about energy and personal security in the country.
In recent years, Mozambique’s Cabo Delgado province has shot to the forefront of the global oil and gas sector. Discoveries made by US energy firm Anadarko and Italian company ENI, revealing more than 2.4 trillion cubic meters of gas off the country’s eastern coast, have attracted the attention of some of the world’s largest oil companies, with Shell, BP, and China National Petroleum Corporation (CNPC) all making moves in the area. However, the discovery has come at a cost, with local people displaced by the sudden influx of large-scale industrial operations and the usual concerns over environmental protection. The situation has been made even more precarious by the outbreak of terrorist violence too, with the Ahlu Sunnah Wal-Jamaah group, allegedly aligned with ISIS, active in the area, sparking conflict.
The government’s response has been to mobilize the army to protect its new natural gas assets, a move that has drawn criticism as the state seems more interested in protecting its lucrative oil and gas projects ahead of its citizens. With the country facing energy and security risks, Mozambique faces a number of challenges to make good on its new lucrative oil and gas potential.
The gas-rich region of Cabo Delgado has been battered by a bloody jihadist insurgency since 2017, the violence resulting in the death of at least 2,600 people and the displacement of nearly 700,000. March’s attack on Palma took place just six miles from Total’s gas project’s nerve center, despite the Mozambican government’s commitment to set up a 16-mile security radius around the site. The growing level of interstate violence continues to raise doubts over the viability of arguably the biggest single investment in Africa. These investment projects, worth nearly $60 billion, were aimed at transforming the East African nation’s economy.
The landscape of Mozambican oil and gas development is, therefore, one dominated by foreign investments and multi-national joint ventures. While this could result in significant investment pouring into the country, questions remain as to how much of this will trickle down to local people, and it creates an unusual power dynamic where much of the money and power in the area rests with foreign companies, rather than local or the national government.
Mozambican President Filipe Nyusi noted this past month that the government would work tirelessly to restore peace. “We will make all efforts to return peace to our country, in particular in the north, in Cabo Delgado which in recent years has been the target of terrorist attacks," he said during an address to the Mozambique Mining, Energy and Oil and Gas conference in Maputo.
The stakes are high for Mozambique — President Nyusi noted peace is a "fundamental condition" for the development of the projects and called on all stakeholders to overcome this crisis. Nyusi said the government foresees "direct benefits" of more than $100 billion dollars from the gas projects, which will diversify the state's income base and allow for reinvestment in other sectors. The projects are expected to generate 70,000 formal jobs over 20 years from 2022, he added.
The violence this past march has dealt a fatal blow to plans by Total and their rival Exxon Mobil, which also had a liquefied natural gas project in the works in Mozambique. Exxon has yet to give final approval for its nearby Rovuma LNG project, as the US oil major delayed its final investment decision last year due to the COVID-19 pandemic and the ensuing price shock in oil and gas markets as demand slumped. Both companies had once hoped to turn the East African state into a major LNG producer to rival other major states such as Australia, Qatar, Russia and the United States.
Total noted that it was too early to provide an updated project schedule at this point in time, especially given that the situation in Mozambique only appears to be heating up. It’s been reported that there is some level of speculation among some contractors that the delay could last upward to at least one year, if not more.