The British government is reconsidering its financial commitment to TotalEnergies’ Liquefied Natural Gas (LNG) mega-project in Mozambique, valued at 20 billion dollars (approximately 1.2 trillion meticals). The decision comes at a time when the UK is reviewing its policy of supporting fossil fuels and is facing legal and political challenges related to the climate commitments made at COP26, the Financial Times (FT) reported.
In 2020, the government agency UK Export Finance (UKEF) approved funding of 1.1 billion dollars for the project, including direct loans and guarantees for British companies involved in building the infrastructure.
However, less than a year after the support was formalised, the project was suspended due to a wave of terrorist attacks in Cabo Delgado, the Mozambican province where it is located.
TotalEnergies is now trying to resume operations, but faces challenges that go beyond security in the region. The current British Labour government, which aims to reduce funding for fossil fuels and speed up the energy transition, is trying to clarify whether the commitment made by the UK is still binding.
According to sources close to the Executive, there are concerns about possible legal repercussions if London decides to withdraw funding.
In addition to the legal issues, there is also growing environmental pressure. During COP26, the UK pledged to suspend new funding for oil and gas projects, and in October 2023, the environmental organisation Friends of the Earth warned that continuing to support the Mozambican project would be ‘illegal’ and a violation of the country’s climate pledges.
The UK is not the only partner to reconsider its support for the venture. The Dutch government is evaluating whether to reissue one billion dollars (66.1 billion meticals) in export credit insurance, while the United States is hesitant to approve new loans for TotalEnergies.
“In addition to the financial challenges, the project faces diplomatic difficulties.Correspondence obtained by the Financial Times shows that the CEO of TotalEnergies, Patrick Pouyanné, tried to persuade the Biden administration to approve 5 billion dollars in loans from the United States, without success.”
The generalised uncertainty could generate a significant financial deficit for the Mozambique LNG consortium, forcing a renegotiation of the current financing mechanisms and possibly further delays in the project.
Initially, LNG production in Mozambique was expected to resume in 2024, but due to instability in the region and the lack of financial guarantees, TotalEnergies has already postponed this deadline to 2029.
The possibility of the UK abandoning the financing further exacerbates the uncertainty surrounding the project, which is considered one of the largest energy investments in Africa and a key element in the diversification of the Mozambican economy.
In addition to the financial challenges, the project faces diplomatic difficulties. Correspondence obtained by the Financial Times shows that the CEO of TotalEnergies, Patrick Pouyanné, tried to persuade the Biden administration to approve 5 billion dollars in loans from the United States, without success.
If the UK and other international partners withdraw funding, TotalEnergies and the Mozambican government will have to find new sources of investment to make natural gas exploration viable in the country.
Meanwhile, ongoing instability in Cabo Delgado, environmental pressures and changes in global energy policies make the future of Mozambique’s LNG megaproject increasingly uncertain.
