Mozambique LNG poses major economic and security risks: experts

In March, the U.S. Export-Import Bank (EXIM), the government’s export credit agency, unanimously approved the second amendment to a 2019 direct loan of up to $4.7 billion to develop TotallEnergies’ Mozambique LNG project.

Initially, EXIM Bank agreed to a $4.7 billion loan for the $20 billion project in 2020, but an Islamist insurgency in Cabo Delgado where the LNG facility will be built led TotalEnergies to declare force majeure in 2021. The French multinational company has now sought approval to lift force the majeure declaration on the LNG project and resume construction by mid-summer.

However, Daniel Ribiero, a Technical coordinator at Friends of the Earth Mozambique said the human rights violations, armed conflict, environmental impacts and risky economic projections of the Mozambique LNG project should have kept most sensible investors away.

“The recent decision of the U.S. EXIM bank to approve $4.7 billion for a French company to operate in Mozambique doesn’t make sense. Especially since Trump threw a tantrum and recently cancelled a few million dollars of aid to Mozambique’s health sector. This exposes the real focus of his administration – to take funds and resources away from people and transfer them to rich transnational corporations.”

Mozambique was once seen as a new frontier for gas in Africa, with vast offshore reserves promising to lift the country out of poverty. The LNG projects face significant economic and security risks, which have escalated dramatically in recent years and are central to current energy and geopolitical debates.

According to an International Institute for Sustainable Development report, the LNG deals are structured so that most of the revenue for Mozambique will come in the mid-2030s and 2040s and is subject to how the international LNG market develops, transferring risk to the state.

“The gas extraction consortiums also avoid paying withholding taxes on dividends or interest. Mozambique has very limited value chain participation, so while foreign companies make money at all the stages, Mozambique does not,” says the report.

Economic & security risks

Paulino Goma, a climate activist and member of the Youth Climate Action Coalition Mozambique, told Gas Outlook that the Mozambique LNG project has faced significant risks due to instability in the Cabo Delgado province, where the project is located. He said armed insurgency and terrorist attacks have led to the temporary suspension of the project, demonstrating how security is a critical factor for the success of such investments.

“Furthermore, this project is being implemented without the consent of local structures and the insurgents are protesting this because at the end of the day this multi-billion dollar project does not benefit the local population. From an economic perspective, dependence on a single resource to drive growth can create vulnerabilities in the event of fluctuations in global gas prices.

“TotalEnergies, although the main operator of the project, has faced criticism for resuming operations without fully ensuring the stability and security of local communities. The company has also been accused of failing to promote transparency and failing to adequately address the concerns of affected citizens, and for me this project does not bring any gains to Mozambicans,” he added.

Vasco Cossa, an environmental sustainability expert at Green Poultry Farm Mozambique, told Gas Outlook that the Mozambique LNG project faces substantial economic and security challenges. He said the project’s viability is threatened by global LNG market volatility, and impending oversupply, which could depress prices and affect profitability.

“Mozambique’s heavy reliance on LNG exports without substantial local value addition would limit economic benefits and increase vulnerability to global market fluctuations.”

In terms of security, Vasco said that given the project’s history of disruptions due to security issues, any doubts about the continuity of the current security arrangements could have significant implications for investor confidence and the overall progress of the Mozambique LNG initiative.

“The UK government, originally a financial backer of the Mozambique LNG project, is currently seeking legal advice on whether it can withdraw its $1.15 billion commitment. This reconsideration aligns with the government’s shift towards clean energy and its broader transition agenda, which may no longer align with continued investment in fossil fuel projects like Mozambique LNG. Additionally, budgetary constraints necessitate reallocation of funds to support domestic energy transition initiatives.

“TotalEnergies has played a central role as the project’s operator, securing financing and attempting to address security concerns. However, the company has faced criticism over its handling of community relations and human rights issues, which continue to pose reputational risks.”

Land & compensation

Goma raised concerns that the export-led model largely benefits foreign investors and local elites, while the communities directly affected continue to live in poverty, often without access to basic services. Furthermore, the resources invested in the gas sector could be allocated to strategic sectors such as agriculture, renewable energy, and education, which promote long-term socioeconomic resilience.

“Many local communities continue to report cases of forced displacement. The government has prioritized protecting investments over protecting community rights, while companies have tended to downplay or ignore these complaints. Community consultation and participation mechanisms have been weak, and grievance channels have been ineffective, resulting in widespread mistrust.”

Vasco further said that community grievances have been a significant issue. He said reports indicate that over 1,000 families are awaiting compensation for land acquired for the project.

“Additionally, communities displaced by the project face challenges such as hunger and increased living costs due to the ongoing conflict and isolation. While TotalEnergies has established grievance mechanisms and requested investigations into alleged abuses, the effectiveness of these measures is questioned. Some community members report that their concerns are not adequately addressed, and there are allegations of human rights abuses by security forces associated with the project.”

Stranded asset risk

Paulino added that this gas exploration project is not sustainable for the future, because as the global energy transition advances, there is increasing pressure to decarbonise economies and reduce fossil fuel consumption.

He added that there is a real risk that Mozambique’s LNG infrastructure could become a stranded asset, especially if importing countries switch to cleaner and more sustainable sources.

“Investing heavily in gas now could leave Mozambique with high debts and unviable assets in the future. It is essential to rethink the development model based on the extraction of fossil resources, prioritising an approach centred on people and the environment. Mozambique has enormous potential in renewable energy and fair climate solutions,” he said.

“The future must be built on the basis of social justice, community inclusion and ecological resilience. But it is up to the government and the elites to decide what best serves the population, and if we continue like this, prioritising filling our pockets and leaving local communities aside, we will continue to suffer.”

Vasco also said the risk of Mozambique’s LNG infrastructure becoming a stranded asset is becoming real. He said global trends indicate a shift towards renewable energy, with projections suggesting a 30% decline in LNG demand by 2040.

“Mozambique stands at a crossroads. While the LNG project offers potential economic benefits, it’s important to balance this with social, environmental, and long-term economic and political considerations. Investing in local capacity building, ensuring transparent governance and policies and contracts, and diversifying the energy portfolio to include renewables as well investing in pre-processing of the LNG before exporting could enhance resilience and sustainable development of the energy sector,” he concluded.

(Writing by Samuel Ajala; editing by Sophie Davies)