Total’s risky bet on a natural gas megaproject in southern Africa
The French energy giant was forced to pause a huge LNG scheme in Mozambique after Islamist militants launched a deadly attack. Is the region safe enough for it to restart?
On March 24 2021, Agostinho Carlos was sitting in the bustling marketplace in Palma, a small coastal town in northern Mozambique, when a convoy of pick-up trucks drove by. At first, he assumed they were providing security for the huge gas facilities being constructed by TotalEnergies and ExxonMobil some 10 kilometres along the coast.
But he was wrong. “A bunch of them got out, screaming, ‘Allahu akbar,’ and started shooting at everyone,” says Carlos. As he watched, the militants, who called themselves al-Shabaab, beheaded their captives with machetes. The violence went on for four days. According to estimates by the NGO Armed Conflict Location & Event Data, over 800 people were killed in what became the worst terrorist attack in Mozambique’s history.
Beyond the grim human toll, the attacks also put a stop to the fossil fuel investments that many hoped would transform Mozambique’s economic fortunes.
After the Palma attack, French oil major Total froze its $20bn plan to process liquefied natural gas project on the Afungi peninsula, a scheme known as Mozambique LNG — at the time the largest foreign direct investment that Africa had ever seen. Total is the operator of the project and owns 26.5 per cent, but companies including Japan’s Mitsui also have important stakes and Mozambique’s national energy company holds 15 per cent.
Four years later, the megaproject is coming back to life. In March, at the behest of the Trump administration, the US Export Import Bank (Exim) unblocked $4.7bn in frozen loans for Mozambique LNG, the biggest package in the bank’s history.
On Tuesday, Total chief executive Patrick Pouyanné said that he was asking Mozambique’s government for approval to lift its force majeure freeze, a process that requires the agreement of other stakeholders in the project. Total is now aiming to restart construction by the middle of the year.
The new push raises the question about whether the southern African country, which has long been one of the world’s poorest, has the political stability to become a major player in the booming global LNG industry.
Mozambique’s discovery in the early 2010s that it had enormous gas reserves acted as a magnet for oil and gas companies like Total and created a huge sense of excitement. According to a 2016 IMF forecast, if the project had gone ahead the country might now have a GDP of $76bn, almost four times larger than its current $21bn.
But the discoveries have already triggered a multibillion-dollar debt crisis and added to continuing regional insecurity — a cycle of corruption and failed development related to the discovery of natural resources that some economists call a “resource curse”.
The investment has also involved immense financial and reputational risk for Total. Other potential investments in the region, including Exxon’s nascent attempts to develop an even larger field on the Afungi peninsula, also hang on the project’s success.
They could determine what role Mozambique plays in the dash by gas producers to meet rising LNG demand since Russia’s full-scale invasion of Ukraine.
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Estevão Pale, Mozambique’s energy minister, says he is optimistic that projects can resume “soon”, without specifying a timescale. “Mozambique is a player in the [energy] field, something the government is trying to show the world,” he adds. “It’s a question of having investors that can [see through] the risk.”
One person familiar with the Afungi project describes the situation as a “catch-22”. “You need the LNG to get the economic development to make the country boom,” he says. “But . . . if security holds back the return to the site and you don’t get the development, that perpetuates the poverty, which makes it more unstable.”
Since its founding in 1924 as the Compagnie Française des Pétroles, Total has established a buccaneering reputation for taking risks to exploit cheap resources and doing business in places other companies would not.
Other recent bets include a $10bn oil project in Uganda that involves drilling wells in the country’s largest national park. But in recent years, the company has been forced to withdraw from Venezuela, while it has also declared force majeure on projects in Yemen and Russia.
“We’ve done that for a hundred years . . . going to some places where others maybe do not go,” Pouyanné told analysts in April. “We are well equipped to do that. It can come today with controversies, but you’re bringing value [and] development potential to the country.”
The discovery of gas reserves off the coast of Cabo Delgado in 2010 by the US oil and gas company Anadarko and the Italian major Eni, together totalling 180tn cubic feet, opened up a fertile new opportunity. Nine years later, Total paid €3.9bn to acquire the rights to develop and operate an onshore LNG plant on the Afungi peninsula from Anadarko.
Mozambique looked like a promising bet. Its location on the Indian Ocean gives it good access to India and China, where demand for LNG is set to rise dramatically. If extraction can work and the profits shared, Mozambique could be transformed into one of the richest nations in the region.
“People at the time thought it was an OK deal,” says Alastair Syme, an analyst at Citi. “With the benefit of hindsight, clearly their assessment of country risk wasn’t quite right.”
There were already signs of a “resource curse”. Soon after the IMF released its projections, Mozambique’s government was forced to admit that it had hidden $2bn in debt from the fund.
Under the guise of developing the fishing and maritime security industries, the Frelimo government — which has been in power since independence from Portugal in 1975 — capitalised on news of the gas discovery to arrange state-backed loans from banks including Credit Suisse and Russia’s VTB Bank.
But costs were vastly inflated, and an estimated $200mn disappeared in bribes. The so-called “tuna bonds” scandal, as the fraud became known, resulted in large fines for Credit Suisse and forced Mozambique to default on its debts in 2016, pushing millions into poverty. The IMF did not lend directly to the country again until 2022.
With the emergence of armed insurgents linked to Isis, the security situation deteriorated. In 2017, an attack on three police stations in the town of Mocímboa da Praia resulted in the deaths of 16 people, according to local media reports.
In March 2021, Total declared it was satisfied with site security and announced that work at the Afungi site would restart. The militants attacked Palma within hours.
Nick Alexander, a South African whose business was contracted to provide temporary office infrastructure, says that he was not warned by Total or other lead contractors of the imminent risk of attacks.
Alexander and others barricaded themselves in a hotel building for two days before managing to flee, he recalls. “I went from thinking, ‘We’ll be OK, there’s a big multinational involved,’ to thinking, ‘We might not get out of this.’”
While the private military company Dyck Advisory Group evacuated some of the almost 200 people holed up in the hotel by helicopter, it soon ran out of fuel. Alexander and other survivors of the attack allege that Total declined to provide DAG with more.
Total denies wrongdoing and says that Mozambique LNG had chosen to support rescue efforts by the Mozambican government rather than using DAG.
Following accusations by Alexander and others that Total failed to take “sufficient measures” to protect their safety, in March French prosecutors launched a judicial investigation into the company for alleged manslaughter and non-assistance to people in danger. Total has said it “categorically rejects” the allegations, insisting it helped evacuate 2,500 people from the Afungi site.
The company has also been embroiled in accusations of complicity in human rights abuses, which it denies. Internal documents uncovered by Le Monde show that Total was aware of allegations that had been made against Mozambican soldiers who were protecting the site, including that they had used violence against civilians and extortion as early as 2021.
The company commissioned a report from the former diplomat Jean-Christophe Rufin, published in 2023. It criticised the “direct link” between the project and these troops, which it said could make it “a party to the conflict” with insurgents.
In March, the Mozambican Attorney General’s Office opened an investigation into potential abuses by its forces.
These legal investigations could take years to advance and will not prevent Mozambique LNG restarting. But they underline the seriousness of the security and reputational risks for Total.
“There was nothing wrong with the potential of the project the first time around,” says the person familiar with the scheme. “The issue was the postcode.”
In the years since the 2021 attacks, northern Mozambique is more secure than it was, not least because 4,000 Rwandan troops have been deployed to the region under a deal brokered with Paul Kagame’s government. Considered more professional than Mozambican forces, they have helped secure key parts of the Cabo Delgado region and regained territory from insurgents. Crucially, they have also reduced attacks in Palma, near the Afungi peninsula, and Mocímboa da Praia, a key port for the project, says Peter Bofin, a regional expert at Acled.
“It’s hard to disconnect the presence of the Rwandans from the LNG,” says Bofin. “They are there to protect the LNG project.”
Insisting that the security situation is now under control, Pouyanné has been working to convince financial backers to throw their weight behind it once again.
The force majeure froze Total’s obligations towards contractors, but also put vast debt agreements on hold.
In the intervening years, the UK, which had pledged more than $1bn in loans, has decided to no longer finance fossil fuel extraction overseas. The FT reported earlier this year that the Labour government is taking legal advice on whether it can pull its money out.
NGOs opposed to the project on environmental and human rights grounds are also threatening legal action if the UK continues to support the project, according to a letter seen by the Financial Times. The Dutch government is also reviewing €1bn it has loaned the project on security and human rights grounds.
But the most important piece of the financing puzzle has always been the US Export Import Bank’s $4.7bn in loans, first agreed in 2019.
Pouyanné lobbied the Biden administration to make the funds available last year. But after Biden had issued a moratorium on new LNG exploration ahead of the US election, the project stood little chance of advancing, says the person familiar with the project. “If you’re doing an LNG pause in America, it’d look a bit odd to approve a foreign LNG project.”
Pouyanné appears to have found a more willing interlocutor in the Trump administration. He flew to Washington in the days around the inauguration, according to flight records analysed by Data Desk, a consultancy that investigates the oil and gas industry.
Companies, including engineering contractors McDermott, TechnipFMC and CB&I also wrote to the new administration to call for financing to be restarted, along with other US businesses that stand to gain from the project.
In March Exim announced that it would approve the project, saying that it was reassured about the security situation. The bank also said that its decision was influenced by the fact that 16,400 US jobs were at stake.
“All the financing is back on track, thanks to the US Exim decision,” Pouyanné told analysts in April. “We are still expecting one or two answers, but in fact, we could finance [the remaining sums] with our equity.”
International companies appear to be committed, at least for now. Kenichi Hori, the chief executive of Mitsui, which owns 20 per cent of the project, told analysts: “Mozambique’s competitiveness, gas quality and reserves have great potential, so we are proceeding with the project while controlling risks on site.”
In a sign that its output remains attractive to buyers, just one company has dropped out — Indonesia’s state-owned Pertamina Gas. Total says that other buyers, including Centrica, EDF and Tokyo Gas, are still committed to the project. But the company has yet to tell financiers when force majeure will be lifted, two people familiar with the project say.
Borges Nhamirre, an independent analyst based in Maputo, says a secure “green zone” has been created around Afungi, but the situation remains fragile. This month, three Rwandan soldiers were ambushed and killed.
“This is not something that will end with just a military response,” he says. “Even if [the insurgents] are weakened, a political resolution is needed because you cannot kill all of them.”
Last month, Pouyanné said that Total’s aim was to restart “by the middle of the year”. This could involve bringing in huge machinery to build out Total’s part of the project as well as shared infrastructure on the Afungi peninsula.
Because of what they describe as “security concerns persist[ing] in the northern Cabo Delgado province”, analysts at Rystad Energy now expect production to begin in 2032.
Delays such as this could have big ramifications. Even if demand from Asia continues to grow, other major LNG projects in Qatar and the US are set to come on stream by the decade’s end.
“The market’s going to be oversupplied, even when you factor in our view of a slower build-out of Qatari capacity and no return of Russian LNG gas due to sanctions,” says Tom Purdie, a gas analyst at Energy Aspects. “Adding 30mn tonnes [per annum] from Mozambique in an oversupplied market is going to add even further pressure to prices.”
For Mozambique, further delays could be costly in other ways too. After receiving a $456mn credit facility from the IMF in 2022, Maputo asked for a new bailout in April, the fund said. The request is being considered.
Even when the LNG finally comes on stream, the proceeds are unlikely to flow immediately. ENH, Mozambique’s state gas company, has had to take on debts to fund its stake in LNG development. It used a sovereign guarantee of over $2bn to cover its share of funding for the Total project, and guarantees from Eni and other partners for the Coral South project — a floating platform operated by Eni that sent Mozambique’s first LNG to world markets in late 2022.
These debts will have to be repaid from initial LNG revenues, Mozambique’s Centre for Public Integrity think-tank has noted.
Meanwhile, Mozambique is paying $81mn a year in interest on a $900mn bond that covered the remnants of the tuna debt. It falls due for repayment in 2031. The bond currently trades at around 15 per cent, suggesting that investors doubt whether Mozambique will be able to pay it off.
Last year, the IMF issued a fresh set of forecasts. If Mozambique LNG does finally go ahead, Mozambique’s GDP growth could hit 10 per cent in 2028, it estimated. But this year LNG sales will contribute just half a percentage point to overall revenues, it said, and by 2029 they would still only contribute 1.5 per cent of GDP. All this is far removed from the rosy picture painted a decade ago.
In the meantime, the simmering conflict will have an impact of its own. “Total has a reasonably high tolerance of instability as long as it doesn’t come too close to the project,” argues Bofin, of Acled. “But the insurgency will keep rumbling on for some years to come.”