Risky business: investment and insurgency in Mozambique
Foreign oil majors have taken a recent interest in Mozambique, but the new facilities are facing challenges beyond the usual social and environmental risks associated with such projects. An Islamic State-aligned insurgency group has attacked Total’s record-breaking investment in the area, raising questions about energy and personal security in the country. JP Casey explains.
In recent years, Mozambique’s Cabo Delgado province has shot to the forefront of the global oil and gas sector. Discoveries made by US energy firm Anadarko and Italian company ENI, revealing more than 2.4 trillion cubic metres of gas off the country’s eastern coast, have attracted the attention of some of the world’s largest oil companies, with Shell, BP, and the China National Petroleum Corporation (CNPC) all making moves in the area.
However, the discovery has come at a cost, with local people displaced by the sudden influx of large-scale industrial operations and the usual concerns over environmental protection.
The situation has been made even more precarious by the outbreak of terrorist violence too, with the Ahlu Sunnah Wa-Jamaas group, allegedly aligned with ISIS, active in the area, sparking a conflict that has killed more than 2,500 people and displaced a further half million.
The government’s response has been to mobilise the army to protect its new natural gas assets, a move that has drawn criticism as the state seems more interested in protecting its lucrative oil and gas projects than its citizens.
With the country facing energy and security risks, Mozambique faces a number of challenges to make good on its new lucrative oil and gas potential.
Overseas investment and unbalanced dynamics
Foreign oil and gas investment is headlined by Total’s $20bn offshore project, dubbed Mozambique LNG, which is a vast facility that aims to produce 13.1 million tonnes of gas a year from 2024, from a reserve of around 60 trillion cubic feet of gas.
The vast project will bring with it a range of infrastructure developments, including the construction of 40km of offshore pipes and a 17,000-acre natural gas processing facility in the port town of Mocimboa da Praia.
Total has drawn attention to the “meaningful social and economic benefits for the province of Cabo Delgado and the country” that the project will bring, including the creation of around 3,000 jobs in construction.
While the company has had to evacuate many of these workers as the violence spreads across the region, there is optimism that, in the long-term, the facility will create sustainable jobs for Cabo Delgado.
Much of the money and power in the area rests with foreign companies, rather than local or the national government.
But Total’s project is not the only major foreign oil project in the country, with ENI, BP, and CNPC all involved in oil and gas projects. ENI, which was among the first to discover oil, operates the Coral South project, which produces 3.4 million tonnes of liquified natural gas per year that is sold to BP.
BP also operates a number of projects in the region as part of a joint venture with Total, including three coastal terminals at Beira, Matola, and Nacala. CNPC has been involved in the $23bn Rovuma project, alongside ExxonMobil, ENI, and a number of smaller shareholders, including Galp Energia.
The landscape of Mozambican oil and gas development is, therefore, one dominated by foreign investments and multi-national joint ventures. While this could result in significant investment pouring into the country, questions remain as to how much of this will trickle down to local people.
In addition, it creates an unusual power dynamic where much of the money and power in the area rests with foreign companies, rather than local or national government.
Credit: MiroS Lav / Shutterstock.com
Defending a record-breaking investment
Total’s project is the largest foreign investment in Mozambique, but has come under intense pressure from insurgency fighters, with Mocimboa da Praia temporarily falling under rebel control in August last year.
Both the state and Total have acted swiftly to protect the facility, with Mozambican president Filipe Nyusi promoting former defence minister Eugenio Mussa to chief of staff of the military, and the groups’ Cabo Delgado Joint Task Force seeing its numbers swell from 500 to 3,000 following the August violence.
Total has also said that it is providing logistical support to security forces under the control of the state government, in the form of vehicles, housing, and supplies.
However, the groups’ response has come under fire, with the government accused of prioritising protecting its oil and gas projects over people.
The combination of disasters has left more than one-fifth of the country’s population without food.
Indeed, there are fears that the presence of foreign security forces around oil and gas operations could further the insurgents’ agenda by unbalancing the power dynamic away from the Mozambican Government. Insurgents can claim that the government has abandoned its people in favour of protecting foreign assets, drumming up more support for the insurgency.
The violence has come on the heels of a number of other crises to hit Mozambique, including the Covid-19 pandemic and 2020’s Cyclone Kenneth. The combination of disasters has left more than one-fifth of the country’s population without food and the UN calling for around $254m in donations to support more than one million people worst hit by the crises.
While the government is not to blame for the breadth of the challenges facing the country, there are concerns about the long-term efficacy of its response.
Social and environmental challenges
These challenges have been compounded by many of the more conventional environmental and social disruptions associated with large-scale industrial development. Local people who have lived in coastal regions of Cabo Delgado for generations have been relocated miles inland to accommodate the offshore projects, disrupting peoples’ ways of life.
This is especially significant considering how heavily Mozambique relies on fishing and farming for its economy, two sectors reliant on people working fixed plots of land. Data from the World Bank shows that around 70% of the country’s workforce is employed in agriculture and Mozambican fishing exports accounted for $42.4m in 2017.
According to law firm Leigh Day, the construction of Total’s project is expected to increase the total greenhouse gas emissions of Mozambique by 10% in 2022, to say nothing of the long-term environmental damage associated with constructing the facility’s related infrastructure.
The construction of Total’s project is expected to increase the total greenhouse gas emissions of Mozambique by 10% in 2022.
Total has, for its part, complied with all necessary environmental regulation, including the completion of an environmental impact assessment, but even this documentation highlights a number of potentially destructive impacts.
The report points to “long-lasting effects, extending decades or longer” for local fauna and notes that the sediment around the drilling points is expected to be disrupted, as is the case with any large-scale drilling operation.
Mozambique has also experienced a number of external environmental pressures, the consequences of which are unlikely to be alleviated by the country’s newfound interest in oil and gas development.
A report from the WWF highlighted a number of underlying environmental challenges, such as water pollution drawn in from the Arabian Gulf and the reliance on trees for the country’s largely rural population. Similarly, last year, tropical storms killed 440 people and flooded thousands of square kilometres, posing another series of environmental challenges.
US and the Gulf of Mexico
The number of active drilling rigs in the lower 48 states of the US, excluding the Gulf of Mexico, stood at 753 in February. This fell to 738 in March, before reaching a four-year low of 572 in April, the lowest since May 2016. As of 8 May 2020, the Lower 48 land rig count reached 355 rigs, according to Baker Hughes’ data.
When it comes to the sought-after oil and gas fields in the Gulf of Mexico, production is estimated to remain relatively flat. The US Energy Information Administration (EIA) forecasts an average of 1.9 million bpd over 2020 and 2021, almost unchanged from its 2019 average.
The administration said that it does not expect any cancellations to Gulf of Mexico projects announced in 2020 and 2021.
Before the oil price crisis in the first half of 2020, Shell had awarded a contract to Sembcorp Marine for construction of the topsides and hull of a floating production unit for the Whale exploration project in the US Gulf of Mexico. Later this year, uncertain economic conditions forced Shell to postpone the project to 2021.
Regarding crude oil production in Alaska, the EIA predicted that it would remain relatively stable, at an average of 460,000 b/d in 2020, and that it will slightly rise in 2021.
Oil companies operating in Norway, Western Europe’s largest petroleum producer, drilled just 30 exploration wells off the coast of Norway by the end of 2020. This marked the lowest level in 14 years, as announced by the Norwegian Petroleum Directorate (NPD) in October.
The search for new oil and gas reserves has also decreased from 57 drilled wells in 2019 and falls behind previous projections of about 50 wells.
The NPD said in a statement: "The decline in demand for oil and lower prices have led oil companies to reduce their exploration budgets for the year and postpone a number of exploration wells.”
Companies including Equinor, Aker BP, and Lundin Energy announced considerable cost cuts in the early phases of the Covid-19 crisis, attempting to preserve capital and weather the storm.
In response, NPD director of exploration Torgeir Stordal expressed concerns over the near future of the industry: "Without new discoveries, oil and gas production could decline rapidly after 2030."
In the meantime, Norway still believes that there are significant resources to be found beneath its seabed, which are projected at around 3.9 billion cubic meters (bcm), a slight decrease from 4 bcm two years ago, the NPD said.
The Brazilian oil and gas industry has been deeply influenced by the unusual events of 2020.
In November 2019, Petrobras announced its 2020–24 investment plan, with a new budget of approximately $75.7bn (84.94% allocated to exploration and production). Despite the challenges, the company has not reported massive obstacles.
It also continued with its divestment programme of some upstream, midstream, and downstream assets, opening new opportunities for foreign investment.
During the Covid-19 outbreak, Petrobras and other oil companies shifted focus from their own projects onto divesting in ancillary projects, which helped reduce their expenses while generating income for the sale of such non-core assets.
November’s bidding rounds by the National Agency of Petroleum, Natural Gas and Biofuels (ANP), showed that the usual interest in Brazil’s offshore upstream rounds has plunged, which led to the suspension of the Brazil Round 17 for exploratory blocks under the concession regime.
Despite the hardships, the ANP managed to keep the First Cycle of the permanent offer, which involves a continuous offer of fields returned and exploratory blocks offered in previous tenders that were not acquired or returned to the agency.
The UK Continental Shelf
British consultancy Westwood Global estimated in September 2020 that the UK Continental Shelf (UKCS) was on course to reach a record low of offshore exploration wells this year, its lowest since companies started exploring the North Sea for oil in the 1960s.
In May 2020, along with the publication of its annual review of global exploration activity and outlook for 2020 and beyond, the consultancy said that while dealing with the immediate Covid-19 crisis, “societal pressure is building for a rapid transition to a low-carbon future”.
In September, Alyson Harding, technical manager at Westwood, said in Energy Voice that the company predicts only five exploration wells will be drilled in 2020, one less than in 2018. By comparison, 14 exploration wells were drilled last year with only one becoming commercial.
According to Westwood’s early estimations from February, the UKCS was predicted to reach 17 wells by the end of the year, but the pandemic hampered these plans. So far, Chrysaor’s and Apache’s Solar well and Total’s Isabella well are commercially viable.
While the Oil and Gas Authority offered 113 licence areas over 259 blocks or part-blocks to 65 companies in early September, it is not certain that operations will take advantage of this opportunity because of current market instability.
Looking ahead, Harding said in a company webinar that the firm has been given indications from companies that 23 exploration and 10 appraisals wells could be drilled in the UKCS next year, depending on the impact of Covid-19 in 2021.
Mozambique’s untapped oil and gas potential was first revealed by initial exploratory drilling in 2007.
Later, natural gas became part of Mozambique’s oil and gas strategy to help industrialise the northern provinces of the country. However, after some recent project cancellations, Mozambique’s Council of Ministers is now planning to transport the north’s oil and gas to the better developed south.
In a tender process run in 2017, Shell was given the right to build a gas-to-liquids plant that would convert gas to synthetic diesel, naphtha, and kerosene; Norwegian chemical company Yara International was allowed to build a fertiliser plant to power the northern town of Palma using domestic market gas; and Kenyan power company Great Lakes Africa Energy was allocated gas to build a 250MW power plant in the north-eastern city of Nacala.
However, whether influenced by the Covid-19 crisis or rising environmental scrutiny in the country, it appears that only the Nacala power plant will take place. Yara has cancelled its fertiliser project and Shell’s CEO has been giving indications that the company does not expect to develop any new greenfield gas-to-liquids projects.