Mozambique has finally launched its first export of Liquefied Natural Gas (LNG) to Europe. The export feeds oil-thirsty Europe, coming on the back of internal displacement and severe bloodshed by insurgent groups in the South African country. Over the past few years, the rise of insurgent groups has crippled economic growth and foreign investments as Islamic militants fight to rule the state.
Over a decade ago, 150 trillion cubic feet worth of LNG was discovered in the Afungi peninsula (offshore) area in Cabo Delgaro Province, Northern Mozambique. The reserve was discovered by U.S-based energy company Anadarko Petroleum Corporation and Italy-based energy company, Eni. By 2019, Anadarko sold off its 26.5 per cent interest in the LNG project to French major, Total Energies.
Brief Background of Mozambique insurgency
LNG was discovered off the shores of Cabo Delgado, northern Mozambique in 2010. Oil terminal construction began in mid-2019 and production was scheduled for 2024. But since mid-2018, activities of insurgent groups like the Islamic State of Iraq and the Levant (ISIL) became active in Cabo Delgado.
Sadly, mass unemployment has forced many locals (especially the youth) to join the Islamist rebels. The group seeks to gain control of the region and its economic wealth. While religion does play a fundamental role in their violent activities analysts have linked the insurgency to widespread social, economic, and political problems in Mozambique.
Nonetheless, the oil discovery has brought hope to Mozambique, as it looks to generate nearly $100 billion in revenue over the next 25 years from the LNG projects. But will this project give the nation the economic emancipation it seeks, or could it be an “Oil Curse”?
The oil curse
“Oil Curse” is an offshoot of the term “Resource Curse”, first used by Richard Auty in 1993 to describe how mineral resource-rich countries were unable to use their wealth to boost their economies. It further explains how such countries had lower economic growth than those with fewer natural resources. It is also known as the paradox of plenty or the poverty paradox.
The idea and conversations around it became popular among economic experts in the 1950s and 1960s following the increase in the discovery of critical mineral resources in low and middle-income countries. Unlike wealthy nations, developing nations with large mineral reserves (particularly fossil fuel) are characterised by less economic growth, poor democracy, civil wars or worse development outcomes.
According to Michael L. Ross in his book The Oil Curse: How Petroleum Wealth Shapes the Development of Nations, countries that are rich in petroleum have less democracy, less economic stability, and more frequent civil wars than countries without oil. This has been the case for oil-producing countries like Nigeria, South Sudan, Angola, Libya, DR Congo and Mozambique. Since it found oil, the Southern African country has experienced frequent attacks from insurgent groups, with violent activities from the Islamic State of Iraq and the Levant (ISIL).
Mozambique has a population of about 33.3 million people (as of press time). It holds Africa’s 3rd largest natural gas reserve, strategically positioned along the Indian Ocean to supply key demand centres in Europe, America and Asia. Although major construction of a $20 billion gas liquefaction and export terminal began in mid-2019 at the Cabo Delgado, the exploration site halted operations following violent attacks from insurgent groups. Consequently, France-based Total Energies declared a force majeure on the LNG project in 2021, withdrawing all its staff from the site.
But on Sunday, the 13th of November 2022, President Filipe Nyusi announced the departure of the country’s first oil shipment to Europe. According to Claudio Descalzi, Eni’s Chief Executive Officer, “the first shipment of LNG from Coral South project, and from Mozambique, is a new and significant step forward in Eni’s strategy to leverage gas as a source that can contribute in a significant way to Europe’s energy security.” The CEO added that Eni would continue to work with its partners to ensure the timely valorization of Mozambique’s vast gas resources.
The Coral South Project
The Coral South Project has a gas liquefaction capacity of 3.4 million tons annually. It will produce LNG from the 450 billion cubic meters of gas at the Coral South reservoir. It is located in Area 4 and operated by Mozambique Rovuma Venture S.p.A. (MRV)- a joint venture owned by Eni, ExxonMobil and China National Petroleum Corporation (CNPC). The joint venture holds a 70 per cent interest in Area 4 exploration and production concession contract, with Eni being the delegated operator for the project and all upstream activities.
The remaining 30 per cent is shared 10 per cent each among Galp (Portugal), KOGAS (Korea) and ENH, Mozambique’s state-owned oil company. While the consortium led by Eni is feeding Europe with Mozambique’s oil resources, the country only holds a 10 per cent stake in the 450 billion cubic meters of the gas reservoir.
The country remains one of the poorest countries in the world. As of August 2020, Statista reported that about 60 per cent of Mozambiqueans lived in extreme poverty, with the poverty threshold at $1.90 per day. As uncertainty rocks the global market, will this latest oil production bring about economic emancipation for Mozambique or could it be a curse?