Mozambique is set to relaunch its plans for a sovereign wealth fund funded by liquefied natural gas (LNG) exports, which stalled in recent years amid instability in the country’s gas-rich north.
The gas sector promises to be the best opportunity to diversify and evenly develop the Mozambican economy. As well as underpinning the SWF, gas could be utilized for electricity production in the infrastructure-poor north. Yet, Islamic insurgency in the northern Cabo Delgado region has ebbed and flowed since 2017, posing significant risks to the sector.
On Friday, the Mozambique parliament will consider the proposal to create the SWF. Aside from the threats posed by armed jihadist groups, gas price volatility, governance shortcomings, and the high cost of public debt servicing also create obstacles to Maputo's efforts to put upstream revenue to long-term use. At the same time, proposed funding and withdrawal policies need consideration.
Plans were originally sketched out in October 2020 when the government published proposals for a fund that would absorb 50% of annual revenue from natural resources – rising to 80% after 20 years. The fund would be used for both fiscal stabilization and savings, in a similar way to the Nigeria Sovereign Investment Authority (NSIA) which has separated pools for stabilization, savings and strategic domestic development mandates.
The development of the prolific Rovuma Basin, assessed to have more than 165 trillion cubic feet of gas in place, is expected to generate revenues of around US$96 billion over 25 years from the commencement of offshore production. However, delays are likely to have stalled the planned SWF.
The Mozambique Rovuma Venture (MRV) – a joint venture between ExxonMobil, Eni and CNPC – operates the deepwater Area 4 block in the Rovuma basin that would feed the planned LNG export plant on the Afungi peninsula from the Mamba reservoirs. Contracts for the development of the field were awarded in 2019, but its development has been delayed for years due to the Covid-19 pandemic and security concerns, and the partners did not take a final investment decision. In March, the partners finally decided to resume the US$22 billion project.
MRV previously planned the construction of two LNG trains with total capacity of 15.2 million tonnes per year (mtpa), but they are now looking to an array of 1.5mtpa liquefaction units with total capacity of 18mtpa in the project’s first phase.
Mozambique became an LNG exporter last year when Eni’s 3.4mtpa Coral Sul FLNG, a floating liquefaction facility, shipped its first cargo, utilizing supplies from the Coral South reservoir in Area 4. Eni and its partners are planning a second floating LNG vessel. TotalEnergies is also planning to restart work on its US$20 billion Mozambique LNG export project after it declared force majeure in April 2021 following terrorist attacks. The capacity of the project is planned at 13.2mtpa.
The projects led by TotalEnergies and ExxonMobil are unlikely to come onstream until 2026 at the earliest, which means the new SWF is not likely to see the expected billions surging into its coffers for at least three years.
The insurgency has been fed by decades-old rivalries and perceived injustices. The north-south divide - combined with ethnic tensions - is a long-term issue that dates to Mozambique’s devastating civil war, which became a proxy conflict for the Cold War following the country’s independence from Portugal in 1975. In the same way as conflict was framed in terms of Cold War meta-narratives, the youth have found an expression for their armed uprising in the form of jihadism.
Aside from regional instability, the development of gas resources to fund the SWF is also challenged by long-term market trends. Currently, development of Rovuma’s gas resources are commercially viable, but this may not be the case if efforts to curtail global warming along with low crude oil prices and surging US gas production significantly soften LNG prices over the long-term.