List of reasons not to finance TotalEnergies’ Mozambique LNG project grows
This analysis is for information and educational purposes only and is not intended to be read as investment advice. Please click here to read our full disclaimer.
The outlook for TotalEnergies’ delayed Mozambique LNG project is increasingly uncertain.
The Financial Times reported at the end of January that the company had failed to convince the outgoing Biden administration to release US$4.7 billion in funding for the project.
The US$20 billion project – set to be the largest ever direct foreign investment in Africa – secured funding in 2020. However, the following year TotalEnergies declared force majeure after violence in the north of Mozambique by Islamist insurgents close to the project site. The funding from the US Export-Import Bank, as well as from the UK and Netherlands governments, now must be reapproved.
As the FT reported, disclosed letters to the Biden administration from the company’s CEO Patrick Pouyanné highlighted concerns that the transition to the Trump administration would add further delays that could “undermine the financing structure, already in place and approved, and bring the entire project to a stop”.
There are now key questions over whether the US, UK and Netherlands will want to approve the project, and indeed whether they should.
It remains to be seen whether the Trump administration will be in favour of funding Mozambique LNG given its “America first” stance and the lack of any US ownership of the project.
The US is the largest LNG exporter in the world, and the new administration clearly wants to see more. In January, President Donald Trump signed the Unleashing American Energy executive order, which ended the pause on further LNG export permits. Does this fit with US funding for a French, Japanese, Indian and Thai project, particularly in the context of questionable long-term LNG demand?
The governments of the US, UK and the Netherlands should also consider the risks and controversies that plague the project.
Pouyanné told investors in October 2024 that the project would be restarted by the end of that year. But it was delayed again after violence broke out in Mozambique following disputed elections, which European Union observers concluded were “marked by anomalies and serious flaws”.
There is fresh controversy over the presence of Rwandan troops in northern Mozambique. They were sent there in 2021 to quell the Islamist insurgency and pave the way for the restart of the LNG project. The EU has been funding Rwanda’s deployment, and TotalEnergies has hired a security company backed by the ruling party of Rwanda to guard its project in Mozambique.
Now Rwanda is accused of using its forces to back a major escalation of conflict in the east of the Democratic Republic of Congo. France has demanded Rwandan forces leave the DRC. Will an EU member such as the Netherlands still want to fund an LNG project protected by Rwandan forces amid calls to reduce Western support for the regime?
LNG supply glut approaching
Aside from the controversies, there is another good reason potential financiers shouldn’t back the project.
As the Institute for Energy Economics and Financial Analysis (IEEFA) has been warning, lacklustre demand growth and a huge wave of new export capacity are poised to send global LNG markets into oversupply, pushing down prices.
The US and Qatar account for much of the new supply due to come online but increased supply is also planned to come from the Republic of Congo, Nigeria, Gabon and later Tanzania, in addition to Mozambique.
Demand growth does not look like it will be sufficient to match all this new supply. European imports may rise in 2025 but IEEFA expects LNG demand in Europe, Japan and South Korea will fall through 2030. Together these countries account for more than half of global LNG imports.
Meanwhile, the idea that LNG will be a bridge fuel that will allow China to reduce its coal consumption is not playing out. China’s astonishing rate of wind and solar installation and reliance on gas imports via pipeline mean the nation’s demand will likely disappoint LNG exporters.
Potential financiers of the Mozambique LNG project need to consider the wisdom of opening up more capacity in an oversupplied market.
And they shouldn’t worry about denying Mozambique a development opportunity. Oil and gas developments have a long history of disappointing development outcomes, often doing more harm than good.
The International Institute for Sustainable Development has warned that the financial benefits of LNG development in Mozambique will be weighted towards multinational oil and gas companies, with little left for the nation.
Nine of the 20 fastest growing economies in the world are in Africa, according to the International Monetary Fund. Most of these states are not dependent on exports of fossil fuels, metals and minerals. Resource-intensive economies in Sub-Saharan Africa have seen far lower growth than the rest of the region over the past decade.
There are a growing number of reasons the US, UK and the Netherlands should not finance the Mozambique LNG project. They can take solace from the fact that Mozambique will likely be better off without it.
This article was first published by Business Day.
