MAPUTO, Mozambique
French energy giant Total SE suspended its $20 billion liquefied natural gas project in Mozambique indefinitely due to an escalation of violence in the area, including a March attack by Islamic State-linked militants.
The
decision is a blow to Total, which bought an operating stake in the project for
$3.9 billion in 2019, hoping to start exporting the super-chilled fuel by the
end of 2024.
The first phase of
the project is designed to produce over 13 million tons of LNG a year.
Total was
resuming work on the project last month, after it was stalled since January
because of security threats, as more than 100 rebels raided the town of Palma
nearby the site. Dozens of people died, millions of dollars of property was
damaged and the company immediately froze plans to resume the project.
The
worsening security situation is also a major setback for Mozambique, which is
facing a rising death toll with hundreds of thousands of people displaced.
Exports of the fuel could help transform the economy of one of the world’s
poorest nations.
The fresh
violence in the north of the Cabo Delgado province “leads Total, as operator of
Mozambique LNG project, to declare force majeure,” the company said in a
statement on Monday. That’s “the only way to best protect the project interest,
until work can resume.” Project finance remains in effect and “Mozambique LNG
has agreed with lenders to temporarily pause the debt drawdown,” Total said.
The force
majeure gives Total “a lot of breathing room” with the construction companies
and buyers of the gas, while increasing pressure on the Mozambican government
to resolve the security situation, said Darias Jonker, Africa director at
Eurasia Group. That will take community engagement as well as intelligence
resources to remove the insurgency, he said. “Overall the downward trajectory
of the situation continues.”
Force
majeure is a provision that allows parties to suspend or end contracts because
of events that are beyond their control, such as wars or natural disasters.
Contracts
for site activities have been temporarily suspended, including that of the CCS
JV, a joint venture between McDermott International Ltd., Saipem SpA and
Chiyoda Corp., Carlos Zacarias, chairman of Mozambique’s National Petroleum
Institute, said at a press conference in Maputo. Some of the agreements could
be terminated depending on how long work is delayed.
The
project had gained momentum as Total acquired the operator stake from Anadarko
Petroleum Corp. two years ago. The company was making progress on early
construction, including an airport along with accommodations for workers.
Simultaneously an insurgency was rising in Cabo Delgado province.A village in Cabo Delgado province
The
Mozambican state had been hoping to reap nearly $100 billion in revenue over 25
years from LNG projects. Earlier delays have already caused the International
Monetary Fund to scale back its economic growth forecasts for the nation.
Yields on
Mozambique’s $900 million of Eurobonds due 2031 rose five basis points on
Monday to 10.47%, widening the country’s sovereign risk premium over U.S.
Treasuries by seven basis points.
Mozambique
LNG had completed nearly $16 billion in funding by July last year, involving
several banks, despite a slowdown in energy investment as the coronavirus
hammered the global economy.
Studies are
being undertaken in order to determine a revised timeline for gas production,
Zacarias said.
The
violence has left at least 2,780 people dead, according to the Cabo Ligado
website, which tracks the conflict. It’s also displaced more than 700,000
people. While the government has pledged to restore peace, attacks have grown
closer to the site, resulting in the evacuation of workers.
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