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Mozambique’s mega LNG project bears brunt of coronavirus impact

Guest post by Ed Hobey-Hamsher, senior Africa analyst at global risk consultancy Verisk Maplecroft

Mozambique has come out swinging against COVID-19, but its government’s response to the 76 cases confirmed so far is delaying its dreams of becoming a regional gas-producing hub. It makes it increasingly likely that Rovuma LNG, the operator of the long-awaited offshore gas project Area 4, will reach a final investment decision in the first half of 2021.

The 14-day quarantine for all new arrivals and restrictions on internal movement will pose practical challenges for its project partners. A fledgling LNG sector and shallow labour market mean Area 4 is very dependent on the expertise and skills of international staff. Senior managers will struggle to access the project site and executives won’t be able to meet government officials and their national oil company, Empresa Nacional de Hidrocarbonetos (ENH), counterparts in Maputo. Both are necessary measures to pave the way to the final investment decision.

The government will likely need to mobilise security resources to enforce the ban on movement – as seen in South Africa. But we consider it a remote possibility that the government will redeploy security forces combatting the Islamist insurgency in Cabo Delgado. A deterioration in security is therefore unlikely to be the cause of any delay.

However, COVID-19 related restrictions in Mozambique may be the least of Rovuma LNG’s problems. In fact, financing will play a bigger role in pushing back the final investment decision into 2021. COVID-19 has reduced global demand for gas and depressed LNG prices.

Additionally, indirect stakeholder ExxonMobil withdrew an application for $2bn of funding from EXIM Bank, the US export credit agency. This followed EXIM Bank’s unfavourable view of the participation of the Chinese state-owned China National Petroleum Corporation. Due to the trade war, the Trump administration is looking to restrict EXIM Bank’s financing of Chinese companies. Commercial banks are also limiting access to debt financing because of market uncertainty driven by COVID-19. This is particularly problematic for Area 4 as ENH is in the middle of refinancing its 10% stake.

Therefore, we see H1-2021 as a more feasible timeframe for the Area 4 partners to reach final investment decision. Any later than H1-2021, and production is unlikely to begin as scheduled in 2025. COVID-19 has revealed how the government’s economic planning is contingent on factors beyond its control.

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