Mozambique has decided to go ahead with new oil and gas exploration projects amidst strong pressure from environmental groups advocating disinvestment in the area due to climate change. However, the government believes that these projects are important to lift the country out of poverty – a position supported by the International Monetary Fund. Oil giants like Total Energies, ExxonMobil, Eni, Sasol, Shell, BP and China’s CNOOC are ready to move in.
By Jorge Joaquim
Huge reserves of natural gas have already been found in offshore areas in the Rovuma Basin off the coast of the northern province of Cabo Delgado. In the south of the country, the Pande and Temane onshore fields, in Inhambane province, are already being exploited by the South African petro-chemical giant Sasol. For more exploration of hydrocarbons, Mozambique’s National Petroleum Institute (INP) has launched the sixth licencing round with 16 new blocks covering an area of over 92,000 square kilometres.
Oil companies that have previously expressed interest in the new round include TotalEnergies, ExxonMobil, Eni, Sasol, Shell, BP and China’s CNOOC. Pre-qualification is open until 28 February 2022, with the results of that process due to be announced on 31 March. Full proposals are due by 31 August 2022, with results to be announced on 30 November 2022.
Winning bidders will have up to eight years to explore their licence areas, and if reserves are discovered, will have two years to complete a commercialisation assessment. Consortia which move ahead to production will have a 30-year maximum exclusive right for production, and a non-exclusive right to build and operate transport and distribution infrastructure, including oil and gas pipelines.
Sleep on Wealth or ‘Accelerate’ Climate Change?
Expectations are high that the new round will accelerate socioeconomic development in the country and raise the profile of Mozambique internationally. It is expected that new projects will generate more state revenue, with taxes on production set at 6% for gas and 10% on crude oil.
According to INP chairperson Carlos Zacarias, “with this tender, we intend to assess the national petroleum potential, and the resources discovered will be made available to society to drive Mozambique’s socio-economic development. We aim to increase the availability of hydrocarbon resources for use as raw materials for electricity generation, fertilisers, and fuels.”
The politics behind the exploration and exploitation of natural gas is highly charged. Some argue that gas is a transition fuel offering huge improvements over coal and diesel, whilst others see it as impeding the energy transition by competing with renewable energy for investment.
While acknowledging the increasing pressure that the climate agenda has put on investment in fossil fuels, Mozambique understands gas will be part of the energy transition.
“Natural gas presents itself as the alternative for the global energy transition and we see that the projects in Mozambique are at the heart of the concessionaires’ strategy”, said the minister of mineral resources and energy, Max Tonela.
Attempts to limit gas in Mozambique are not sensible – IMF
Attempts to limit gas in Mozambique are “not sensible”, IMF representative in Mozambique, Alexis Meyer-Cirkel, said in November. “I think that this discussion, preventing Mozambique from developing this wealth, disproportionately penalises a country that has not contributed to the creation of the problem and that is a poorer country,” he stressed. He also said that Mozambique’s carbon emissions are very low and that it would be unfair to prevent this type of project. Meyer-Cirkel recognised the effects of climate change but said that the consumption of fossil fuels “is a problem to be solved globally” and not at the expense of a single country, adding that the transition to renewable energy will take time
The IMF has always promoted gas and other big resource projects in Mozambique, but Meyer-Cirkel went on to raise some questions. He showed the slide below, predicting that in the post-Covid period African non-resource countries are recovering well, but resource countries are not. African resource counties are predicted to lose 2.9% of per capital GDP between 2019 and 2022, while non-resource countries are expected to gain 3.8% of GDP – a huge difference. The reason, he explained, is that non-resource countries have more diversified and flexible economies and can better respond to difficulties.
The IMF has also voiced high-profile support for the mozambican gas projects, with Abebe Aemro Selassie, IMF director of the African department, commenting on Mozambique’s economic prospects in November that, “LNG can be a game changer for economic transformation, development and inclusive growth, potentially lifting millions out of poverty if the right policies are put in place.”
However, civil society groups remain highly sceptical of the ‘gas-as-development’ narrative. A report co-published by Friends of the Earth (FoE) International, FoE France and FoE Mozambique argued that the discovery of gas in northern Mozambique a decade ago has already resulted in worsening conditions for Mozambicans: “The gas boom has come with increased conflict, violence, corruption and social inequality… The major gas companies are in a position of power and can set the rules and grab the profits.”
Campaign group won the right to take the UK government to court over its decision to provide over $1bn in loans and guarantees to Mozambique LNG. Friends of the Earth argues that the UK’s support for the gas export project goes against the UK government’s commitments under the Paris Agreement to limit global warming. The gas produced by the project will, when burned, produce emissions equivalent to the total emissions from the aviation sector for all EU member states combined, FoE said.
UK Prime Minister Boris Johnson reportedly felt he was “bounced into” the decision to approve funding by UK Export Finance (UKEF), the UK’s export credit agency (ECA) for the project in July 2020. He called for an immediate review into the ECA’s lending policy on fossil fuels which led to a decision in December 2020 to end all public financing for coal, oil and gas projects overseas.
If Friends of the Earth wins its case over the Mozambique project, it believes the UK government could be forced to withdraw the $300 million in loans and $850m in direct guarantees that it committed to the project in July 2020, as it would no longer be consistent with UK government policy.
Peace is a necessary condition for investment
Besides the battle with environmental activists, the Mozambican government is facing terrorist groups in the oil and gas exploration zones. The situation is embarrassing. French oil company Total halted construction work and pulled many of its staff out of Afungi following a terrorist attack on 1 January on the resettlement town of Quitunda, a new town built to house people resettled from the areas of the Peninsula where the gas liquefaction plants will be built. In March, it planned to resume work but terrorists attacked the town of Palma which lies 15 kilometres from Afungi and within the 25-kilometre security perimeter. During the attack, over 30,000 residents fled the onslaught and dozens of local people and foreign contractors were murdered.
However, since then the Mozambican armed forces together with their allies from the Southern Africa Development Community Mission in Mozambique (SAMIM) and Rwanda have continued to make progress in returning security to the areas affected by terrorist attacks.
“Good progress is being made” on improving the security situation in Cabo Delgado province, where insurgent attacks caused TotalEnergies to step back from its project, said in November ExxonMobil’s head of upstream oil and gas, Liam Mallon, after a meeting with Mozambican president Filipe Nyusi. “We continue to monitor that situation very closely,” he continued. “I think both Area 1 and Area 4 essentially are in a pause situation, while that situation is improved.”
“We want a situation of sustainable security that will allow all the planned investment projects in that area to take place,” said the minister of mineral resources and energy, Max Tonela.
However, the Italian energy company ENI has confirmed that it will start the production and export of liquefied natural gas (LNG), from its floating platform off the coast of the northern Mozambican province of Cabo Delgado, as from mid-2022. Unlike the onshore LNG projects, the floating platform has not been affected by the terrorist attacks in Cabo Delgado.
The floating platform is already in its voyage from South Korea to Mozambican waters. The floating platform will be stationed above the Coral South gas field, from which it takes its name, in Area Four of the Rovuma Basin, about 40 kilometres from the Cabo Delgado coast.
In November, Nyusi declared in South Korea that the start of production at the Coral South FLNG project will turn Mozambique into a relevant player in the global hydrocarbon market.
As for the onshore gas liquefaction project, in the Afungi peninsula, in Palma district, Nyusi said the government remains in touch with Total in order to assess the conditions and determine the right moment for the resumption of activities, but attaching special attention to the protection of human lives in the communities as well as protecting the investments.