Published by International Institute for Sustainable Development (IISD), December 2023
Halsey et al, ‘Navigating Decisions: The risks to Mozambique from liquefied natural gas export projects’, December 2023, International Institute for Sustainable Development (IISD)
Please access the full study below or visit the IISD Website.
This report explores the increased interest, partly driven by the European Union (EU), in liquified natural gas (LNG) production and export in Mozambique. It examines whether LNG offers a reliable route to economic development or risks creating exposure to projects that will ultimately burden the Mozambican government. The EU and member states are involved as off-takers and supporting the development and operation of these LNG facilities. The findings of this report show a case that should justify a change of course for policy-makers in both Mozambique and the EU away from these LNG investments.
The climate science is clear that there should be no new natural gas project developments, including in Mozambique, if the world is to limit global warming to 1.5°C. Nevertheless, the argument presented here is based on the social and economic case rather than climate change imperatives.
Key Findings
Social and Environmental Impacts
LNG development has been marked by poorly managed community resettlement, increased social tensions, insufficient human rights due diligence, and links to the violent insurrection in the province of Cabo Delgado, where the LNG projects are located. Ecosystem damage decreases tourism.
Economic Concerns
The LNG projects have received disproportionate public finance support—60 times thatof renewable energy. They have also increased national oil company debt and sovereign liability. The LNG deals are structured so that most of the revenue for Mozambique comes 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.
Risks to Future Financial Returns
These include reduced demand for LNG from Mozambique as the global transition
away from fossil fuels ramps up and increased competition from alternative and cheaper gas suppliers. There is also the risk of lower revenues than projected by the government. The factors involved include volatile gas prices, downward price pressure from excess supply, and the security situation in Cabo Delgado, which is pushing up costs and threatening production.
Risks to Sovereignty
There are several of these – international investment law protects the LNG projects at Mozambique’s expense; military and security services protect LNG infrastructure rather than people; and TotalEnergies has taken over some state functions.
Gas Has Not, and May Never, Contribute to Economic Development
In the 12 years since gas discoveries were made, economic development has not improved in Mozambique. In fact, in Cabo Delgado, it has gotten worse. The combined financial risks could result in stranded assets and convert government equity into a liability.
Recommendations
Mozambique should fully address the negative impacts already caused by LNG projects. Decisions around the future of the already operational Coral South field should be based on a comprehensive, independent reassessment. Instead of further LNG projects, Mozambique should prioritize less-risky development initiatives that provide greater benefit to the people, environment, and economy. EU member states should work with the Government of Mozambique to deliver sustainable economic and social development.
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