Signal Risk on Mozambique – Going somewhere slowly

PUBLISHED: Tue, 14 Sep 2021 10:28:41 GMT

*This analysis was produced by the team at Signal Risk

The apparent success of the multinational intervention in Cabo Delgado province has begun to shift the discourse on Mozambique’s liquefied natural gas (LNG) sector and its wider economic prospects. After a period of deep pessimism and uncertainty in the aftermath of the March attack on Palma, key actors have exuded greater optimism of late.

An imminent comeback

First to express confidence in the future of Mozambique’s LNG sector was Minister of Mineral Resources and Energy, Max Tonela. Speaking during a meeting of the Confederation of Economic Associations (CTA) – the country’s largest business association – on 11 August, Tonela assured local stakeholders that LNG investors will soon return to Cabo Delgado following the recent gains made by the Mozambican Armed Defence Forces and police (FDS) and their Rwandan counterparts. His confidence was no doubt boosted by the 05 August liberation of the strategic town of Mocimboa da Praia from insurgent control.

Totally energised

Tonela’s position was echoed on 27 August by the African Development Bank (AfDB), which has lent more than USD 400 million to TotalEnergies for the multinational company’s Mozambique LNG project. In a statement to the Reuters news agency, AfDB president Akinwumi Adesina noted that the ongoing stabilisation of Cabo Delgado province should support the resumption of activities at the Mozambique LNG project within one year to 18 months.

The project was arguably the most affected by activities of the al-Sunnah Islamist militant group, given the fact that its contractors or those of its partners made up the bulk of the non-native community in Palma. Its facility in the Afungi peninsula – which has been under the oversight of local security personnel since April – has also served as a sanctuary for those fleeing violence in Palma. Unsurprisingly, territories in the vicinity of the concession were frequently targeted by militants. Nevertheless, since the deployment of Rwandan forces in mid-July, militants have been cleared from surrounding areas. The joint forces have also commenced with the establishment of a 25-kilometre security cordon around the concession, which is a key demand for the company to resume operations.

TotalEnergies itself has yet to publicly comment on the latest developments; however, its commitment to resuming its venture in Mozambique was demonstrated by recent personnel changes within the company. As per reports from 30 August, Maxime Rabilloud was appointed as country director for Mozambique, replacing Ronan Bescond. Rabilloud has vast experience in developing hydrocarbon projects in challenging jurisdictions and engaging with Lusophone stakeholders, having previously spearheaded TotalEnergies’ office in Brazil.

The peripheral push

While much of the talk on Mozambique’s LNG sector has surrounded TotalEnergies, another investor – the Italian-owned Eni – has continued to make steady progress on its venture.

On 17 June, a spokesperson for Eni noted that the company is on track to begin commercial exports of LNG from its Coral South Floating LNG facility (FLNG) in 2022. Located some 100 kilometres off the coast of Cabo Delgado province, Eni’s facility has been largely unaffected by the violence on land, thus allowing the company to maintain its schedule. The project, which cost roughly USD 7 billion, is expected to produce 3.4 million metric tonnes per annum (mmtpa) at scale, considerably less than TotalEnergies’ capacity of 13.1 mmtpa, and ExxonMobil’s capacity of 15.2 mmtpa. As part of an agreement, all gas extracted by Eni at Coral South will be sold to BP for a period of 20 years.


The optimism demonstrated by key stakeholders in Mozambique’s liquefied natural gas (LNG) sector is largely rhetorical and does not necessarily shift timelines associated with progress in the sector and associated economic gains. As previously indicated, despite the declaration of force majeure, there was little to suggest that TotalEnergies would abandon its venture in Mozambique, especially after a substantial layoff and the conclusion of myriad funding and sales agreements. The same applies to ExxonMobil. While the United States (US) energy major is less exposed to insecurity in Cabo Delgado province (due to less spending thus far) there was insufficient evidence to suggest that it would completely divest from Mozambique and forgo a lucrative opportunity in the frontier market. Accordingly, it was noted that security concerns would delay construction activity by TotalEnergies – and ExxonMobil’s final investment decision – by at least a year as the companies assess the trajectory of the counter-insurgency efforts. Currently, as there are clear indications of a decline in the threat facing key LNG interests, both companies will likely proceed with their respective ventures.

The delay in construction activity by TotalEnergies and ExxonMobil will result in slower-than-expected economic growth and consolidation of key accounts in 2021. As per the latest April publication by the International Monetary Fund (IMF), the domestic economy is projected to grow by 1.6 percent in 2021, recovering from a 1.3 percent GDP contraction in 2020. This is in contrast to forecasts prior to the security-related disruptions, which stated that the Mozambican economy would grow upwards of 2.5 percent in 2021. The current expected growth will have a soft consolidatory effect, with the deficit-to-GDP ratio expected to only decline from 5.4 percent in 2020 to 4.1 percent in 2021. The debt-to-GDP ratio on the other hand, will increase from 122.2 percent in 2020 to 125.3 percent in 2021, due to the uptake of emergency loans. Mozambique’s current account balance will also remain fragile at a deficit of 68.9 percent of GDP in 2021, while the country is expected to have a modest stock of reserves for the year in 2021, at an average of 2.8 months of import cover. That said, the commencement of exports by Eni – and the potential resumption of construction activities by TotalEnergies and ExxonMobil, alongside a recovery from the coronavirus-induced slowdown – could result in growth of more than 4 percent in 2022.

Should TotalEnergies commence with construction activities in 2022 or early 2023, this will – all things being equal – defer Mozambique’s expected LNG boom to the latter half of the current decade. Remarks by TotalEnergies suggest that it requires roughly three years to finalise construction activity and make the first commercial exports. This means that if the undertaking does commence as planned, it may only conclude in 2025 or 2026. Should ExxonMobil make its investment decision in 2022 and commence construction activity, there is also some consensus that it may only make first exports after 2026. Barring unforeseen events like natural disasters, further delays to the LNG timeline are seen as increasingly unlikely, especially given the commencement of processes to establish security buffers. Fuel companies typically have a relatively higher risk appetite than other commercial enterprises and have adapted to jurisdictions that are as insecure as Mozambique, such as Libya and Nigeria. Accordingly, once the companies’ minimum security conditions are met in Cabo Delgado province, they will likely commence with operations.

Mounting financial pressure on Mozambique may however, pressure the government to restructure its sole Eurobond and bilateral debt via the G20’s common framework. The USD 900 million bond matures in 2031 and has a coupon rate of 5 percent until 2024, which will increase to 9 percent thereafter. In the absence of the LNG windfall, Mozambique’s financing options will be limited, especially given a low-growth environment due to the coronavirus pandemic. As such, seeking debt treatment could be prudent on the part of Mozambican authorities. The plausibility of restructuring was noted by Fitch Ratings in its latest assessment on 21 July. The agency maintained its CCC (sub-investment) rating of Mozambique on account of existing risks to debt sustainability, elevated financing needs, unresolved public sector liabilities, and possible recourse via the G20.

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