LNG projects in Mozambique threatened by increased attacks

The drastic escalation in terrorist activity in north-eastern Mozambique over the past week and the long-running insurgency from Islamist terrorists is putting not only the success of the country’s major LNG projects at risk, but also the country’s economic future in jeopardy. The development of LNG deposits in Mozambique is absolutely crucial to the economic success of Mozambique, one of the poorest countries in the world. 

With the beginning of the end of the rainy season, Islamist fighters known as Ahlu-Sunnah Wa-Jama ((ASWJ) – with links to the so-called ‘Islamic State’ - last week launched their latest offensive in Cabo Delgado province in the north-eastern part of the country and specifically around and within the coastal town of Palma and close to the overall $20 billion Mozambique LNG development project headed by French oil major Total. 

The insurgents – who have been active in various part of the region since 2017 – went on a new planned offensive and killing spree from 24 March targeting locals and foreigners alike. According to first-hand reports they were well organised and well-armed with automatic weapons, RPGs and mortars. And it is no-coincidence that the LNG development area is the focus of this latest attack. Reports from Palma say that the Mozambique armed forces – Forcas Armadas de Mocambique (FADM) – were nowhere to be seen until 28 March. Private security firms (eg Dyck Advisory Group) were primarily the only real opposition, and equipped with helicopters, the only real means of escape for some foreigners.

This basic description is perhaps an oversimplification of these most recent events, but full details have been slow to obtain from this huge and relatively remote area of the country. What is clear is that the brutality – killing of women and children, multiple beheadings etc - and intensity of the attack is designed to spread real disruption and fear. Since 2017 some 700,000+ people have now been displaced by such terrorist attacks in the region. 

What is also abundantly clear is that the government has for years completely failed to address the situation properly. It has failed to protect the local population, it has failed to spread hope of economic progression with the spread of jobs and an alleviation from poverty with basic fundamentals such as clean water, power, sanitation, health and education, and it is failing to properly protect the foreign direct investment (FID) for LNG which can lift the people country out of the dire poverty.   

So, why has this situation been languishing for so long now without any real signs of the government or the FADM making any real meaningful progress? Speaking to Robert Besseling, CEO of Pangea-Risk, the specialist intelligence firm, he explains: “One, the Mozambican government does not cooperate with other governments in the region, regional security structures, or other institutions as it is unwilling to disclose the severity of the conflict, and its own deficiencies in dealing with the insurgency.” 

He adds: “There have been countless human rights violations perpetrated by local security forces, state actor collaboration with the insurgents, and political motivations for the militancy. This also explains why private military contractors with often dubious mandates are employed to engage in combat operations. 

“Second, and most importantly, there is a broad-based misunderstanding or lack of comprehension around the concept of an insurgency. The militancy is rooted in deep-seated socio-economic, ethnic, and political grievances, which remain unaddressed. In fact, by contracting private military companies and encouraging often brutal counterinsurgency tactics by local troops, these grievances have been exacerbated, thus boosting local recruitment and escalation of militancy tactics.” 

Besseling is adamant that the government needs to not only properly engage with regional and foreign help, but actively bring it in. He adds: “In order to find an immediate way out of this crisis and avoid further escalation that threatens the LNG sector development, the Mozambican government needs to seek support from the regional Southern African Development Community (SADC) security structures, neighbouring South Africa, and key investment partners in the LNG projects, such as France, Italy, and the US.  

“However, to end an insurgency Mozambique and the region need to address the underlying grievances that triggered the insurgency in the first place, ie. poverty, political exclusion, religious intolerance, ethnic fragmentation, and wealth inequality, among others.”

The Pangea-Risk Mozambique insurgency report published on 12 March also provides real insight into the dithering of the Mozambique government. It states: “An SADC inter-governmental summit which was meant to take place in January to discuss a regional response to the crisis has reportedly been postponed until May or June to allow SADC commanders to first meet. 

“Officials from South Africa’s Department of International Relations and Cooperation have expressed frustration that their Mozambique counterparts have yet to provide any kind of guidance as to the type of support Mozambique needs.

“In the interim, support from non-regional states appears more likely to manifest. Portuguese Defence Minister, Joao Cravinho has stated that a detachment from Portuguese special forces could start conducting training activities with the FADM in Mozambique as early as April. Portugal will also provide some logistical and equipment support in line with the training programme.”

So much at stake

Globally, the biggest energy project financing of last year was the overall $20 billion Mozambique LNG project. Debt financing of $14.9 billion was closed in the third quarter, making this the largest export credit agency-backed project ever in sub-Sharan Africa. The project has four ECA direct lenders: JBIC ($3 billion), US Exim ($4.7 billion), Thai Eximbank ($150 million), UKEF ($300 million), four other ECAs with covered tranches, as well as loans from Afreximbank, African Development Bank, DBSA and some 19 commercial bank lenders. 

There is a seven-strong sponsor group spanning five different countries which includes Total (26.5%), ENH (15%), Mitsui (20%), ONGC (10%), Beas Rovuma Energy Mozambique (10%), BPRL Ventures Mozambique (10%), and PTTEP Mozambique Area 1 (8.5%). The project is the first onshore LNG project in Mozambique and includes offshore extraction infrastructure, underwater pipelines, an onshore processing plant, and other support facilities. Mozambique LNG expects to produce the first LNG in 2024, delivering 12.88 MTPA of LNG in its first phase.

Once fully operational, the LNG project will have a significant role in the economic development of Mozambique and in the global energy transition by being a catalyst for changes in the global fuel mix with declining coal and heavy oil sources. With targeted export countries largely based in Asia (India and China in particular) some of the volumes sold by the Mozambique LNG project will be used in power generation to replace coal and heavy oil which in turn will lower carbon emissions globally. This and other FDI should transform Mozambique. 

ExxonMobil is also poised to start on the Rovuma LNG project originally estimated to have an overall investment of $30 billion. Exxon’s final investment decision (FID) had initially been delayed due to low gas prices, but for some time now it has been the worsening security situation that has really pushed back its FID. The Rovuma gas field is in the same area as that of Mozambique LNG, and in late 2020 it was reported that Total and Exxon were in talks, along with the Mozambican government, about certain aspects of a shared approach to extraction. 

The field that straddles both projects is understood to contain gas that is thicker and therefore cheaper to extract and convert into LNG than reserves elsewhere across both projects. Any new agreement along these lines could see a reduction in costs for both major sponsors of these projects, greater efficiencies and increased production. But - and it is a big but - all this depends on proper security being deployed to protect operations and the huge investments at stake.

Just looking at the massive amounts agreed through direct ECA financing and DFI financing for Mozambique LNG it is surprising that more noise is not being made by these institutions and some of the related governments. US Exim has pledged $4.7 billion in direct loans for instance – its biggest ever amount for a sub-Saharan African project. This is obviously an incredibly important project for US companies and suppliers, and at the same time it allows US Exim’s goal of countering China’s influence in the region. The US is also the largest bilateral donor to Mozambique.

The US government seems to be waking up a bit more to the extreme threat of ASWJ. In mid-February the US Ambassador to Mozambique, Dennis Hearne, declared that the US is willing to provide unspecified security assistance in line with any requests from the Mozambican government. And in early March the US formally designated ASWJ a global terrorist entity. But as seen over the last couple of years, the Mozambican government has been so reluctant to ask for outside help to deal with this problem. A paralysis which has helped exacerbate the situation immensely.

It is also pushing Total to consider different project logistic scenarios to those originally planned. For instance, it has been reported that Total is considering setting up a logistics base on the French island of Mayotte in the Indian Ocean rather than in Mozambique. This will likely end the Mozambique government’s hopes of establishing such a base in Cabo Delgado and potential much needed jobs for the local population. Total is also understood to be looking to build an LNG import terminal at Maputo in the south of the country where the domestic allocation of gas from the project will be transported by ship.

The increased focus of attacks on LNG development areas now really raises the bar for all concerned and indeed for the economic future of the country. As the Pangea-Risk Mozambique insurgency report stresses: “ASWJ has demonstrated keen awareness of the importance of LNG development in the region, and targeting the sector complements the group’s strategic and tactical goals. For instance, attacks in close proximity to LNG facilities both affect government revenues by disrupting commercial activity and also diverts security forces to expend significant resources in protecting LNG assets, potentially undermining government offensives in other districts and creating new security gaps.”

The Mozambican government is long overdue in addressing these fundamental issues properly. It needs, as a matter of urgency, to formally ask for specific regional and non-regional help and moreover it owes this to both the hard-pressed population and the companies and institutions that have invested so much into LNG development.