It should have shocked nobody when Total declared force majeure at its troubled Mozambique LNG project on April 26. The situation in Cabo Delgado province has been deteriorating steadily for years, as we have warned before. Total announced the resumption of work at the end of March with the government promising a 25km security perimeter. On the very same day insurgents launched a five-day assault on Palma, just a few kilometers from the gas project.
Hopes of a share of the wealth is said to be driving militant recruitment, but whatever the message, it has become clear in the last year that the government are not currently able to control the insurgency. Total appear to have reached a similar conclusion. Local sources suggest that the company will halt the project for at least this year, but given the trajectory of the conflict, it could be much longer.
This is a blow not only for Total, which hoped to start producing gas by 2024, but for the Mozambican economy as a whole. The government was expecting a windfall to the tune of USD 100 billion in extra revenues over 25 years from the exploitation of the country’s gas fields, a figure roughly six-times annual GDP. Now it faces a prolonged fight for stability in the North, which will likely also require significant regional investment to secure the peace.
Sometimes a risk materializes from nowhere, but that is less frequent than often thought. Pressures leading to coups, or feeding security crises, or building to an economic catastrophe are often present well before the events that bring them to global attention. Long-term fixed asset investments are particularly exposed, especially resource extraction projects that can’t simply relocate. The high stakes in Cabo Delgado ought to focus minds toward a solution, but this news has been a long time in the making. It may be some time in the resolving, too.
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