Total SA’s liquefied natural gas (LNG) project in Mozambique has so far cost around US $ 15 billion – roughly the same value as that African country’s economy – even when the Covid- 19 threatens the global financial system, Bloomberg says.
Energy companies have struggled in recent months against prices for everything from oil to natural gas, largely because of weakening demand in times of the new coronavirus pandemic. Although oil has partially returned, the gas market continues to be hit by an oversupply. Creditors still support Total’s LNG Mozambique, betting on the country’s location in southern Africa to facilitate exports and the large size of gas deposits linked to the project.
The company spent 600 million dollars more than initially planned, with prices at the level of pre-Covid-19 times, according to Katan Hirachand, director of Societe Generale SA, who advised the financing. Total has not yet commented.
“Having excesses in this environment is really phenomenal and is a testament to the strength of the project,” said Katan Hirachand, adding that the financing should be signed later this month.
The 23 billion project has been going on for years, with Anadarko Petroleum Corp. to discover the first large offshore gas deposit in over a decade. The company worked with several stones in the shoe and numerous price fluctuations to ensure long-term buyers around the world. Occidental Petroleum Corp. bought Anadarko and sold the project to Total last year.
Mozambique’s LNG and others being developed by Exxon Mobil Corp. and Eni SpA are crucial for the African nation, one of the poorest in the world. The World Bank estimates its gross domestic product to be $ 14.7 billion. The country last year expected to receive 95 billion in revenue over 25 years from three projects.
Their location, halfway between Europe and Asia, is a great advantage, giving them access to large markets. In addition, the gas fields that will supply the projects are so large that “multinational energy companies cannot be ignored,” said Douglas Mason, associate of the consultant Eunomix. “With more than 150 billion cubic feet of reserves, these are the foundation for an extremely significant new energy jurisdiction,” he added.
Exxon’s Rovuma LNG venture is adjacent to Total’s. Together, the two projects could finally be able to export more than 90 million tonnes of LNG annually and process gas for local use, according to a presentation by Standard Bank Group Ltd., which is involved in Total’s financing project. Eni approved its $ 7 billion project in 2017.
Standard Bank estimates that several other projects, including those that convert gas into liquids and fertilizer plants, could be built to benefit from gas supplies. All of this, together with the gas liquefaction facilities, may involve a total of $ 125 billion in investments.
Cabo Delgado and Covid-19: the great enemies
Even so, Mozambique faces great risks. Terrorist attacks have killed more than 1100 people in the region surrounding the Total project. The company was also forced to delay construction on the project after the site became the epicenter of the country’s first SARS-CoV-2 outbreak.
“The security risk of the project was not properly considered,” assumed Mason, from Eunomix. “Mozambique is a fragile country, with weak institutional capacity and multiple failures at the socio-economic level, with several conflicts and a lot of instability, and companies that invest in the sector have not shown to understand this”, said Mason, who cited as an example the drop in $ 3 billion in coal assets of the Rio Tinto group, in an attempt to export the commodity.
The drop in oil and gas prices has also forced companies like Exxon to cut spending and redefine project priorities. The final investment decision for the Rovuma area has been postponed.
However, Total’s financial success “makes Exxon’s eventual FID likely, although most likely the French company postponed it until 2021 or more,” said Robert Besseling, executive director of the consulting firm EXX Africa.
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