Gas-Exporting Mozambique Is a Cautionary Tale in the Loss and Damage Fight

(Bloomberg) -- The devastation that cyclone Idai caused in Mozambique in 2019 galvanized the world to take action against climate change, much as deadly floods in Pakistan did this summer. Yet three years later, Mozambique has given up waiting for help from abroad and is focused on developing its massive natural gas resources to fund recovery and growth.

One of the world’s poorest nations, Mozambique joined the club of gas-exporting countries earlier this month when it flagged off its first shipment of liquefied natural gas to Europe. Funds obtained from selling fossil fuels will help fund the country’s green transition, said Mozambique President Filipe Nyusi in an interview with .

“We need to allow an opportunity for these fossil fuels to be exploited so that we can generate resources for renewable energies,” Nyusi said earlier this month, speaking on the sidelines of the COP27 climate meeting in the Egyptian town of Sharm El-Sheikh. “We need to be given opportunities — other developed countries had this opportunity.”

The energy crisis sparked by the Russian invasion of Ukraine has sent European nations on a quest for alternative gas sources. In recent months, countries such as Germany and Italy have been looking to secure supplies from African nations, while at the same time discouraging the use of gas and other fossil fuels in international forums including COP27.

That contradiction led prominent African activists, like Mohamed Adow from Power Shift Africa, to accuse Europe of hypocrisy and “energy colonialism” and of using the continent as its “gas station.” The European Commission’s climate chief Frans Timmermans told the media at COP27 he believed renewable energy needs to play a key role in the world’s efforts to decarbonize and fight climate change, but that gas can play “a transitional role.”

About 70% of Mozambique’s grid is supplied with hydroelectric power, but electricity reaches only around a third of the country’s people. The government is now seeking developers for a $4.5 billion hydropower dam and a transmission project in the center of the country. Selling some of its ample gas reserves could provide enough funds to bring electricity to more people, Nyusi said.

Getting payments for leaving fossil fuels in the ground — a solution considered as part of a potential Just Energy Transition Partnership for Senegal — wouldn’t make sense either, because it wouldn’t change the fact that there’s a shortage of gas, he said.

“It’s not just money we need; we need to think about the human beings who will suffer in the end when they are not supplied with enough power because gas is in high demand” currently, Nyusi said in reference to the global shortfall. “Money is good, of course, but we need to take into account the needs of the people to whom I’m denying the opportunity to get access to energy.” 

COP27 brought a breakthrough in developing countries’ fight to be compensated for loss and damage related to climate change, with an agreement to establish a fund paid into by rich nations. But how the fund will work is still unclear, and wealthy countries have fallen short on past pledges to commit billions of dollars to climate finance. As Mozambique’s example shows, international help that comes too slowly or in half measures may not incentivize countries to move away from fossil fuels. 

Dealings with international organizations in the past have also made the Mozambique president skeptical of relying on foreign funds to fix issues at home. In March 2019, cyclone Idai made landfall in the country’s second-largest city, Beira, and was followed by cyclone Kenneth a month later. The storms led to about 1,000 deaths and flooded large swaths of central Mozambique, destroying infrastructure and resulting in a humanitarian crisis. It was one of the worst natural disasters to strike southern Africa in decades. 

Back then, Nyusi’s administration worked around the clock with the World Bank, the International Monetary Fund and the African Development Bank to come up with an estimate of the amount of money the nation would need for the recovery — between $3.2 billion and $3.5 billion. Then, the country held a conference in which donors made pledges to contribute.

“We knew what we needed and how, and we communicated that,” Nyusi said. “But only 30% of that money was disbursed.” 

Halted projects

Mozambique has waited for a decade to be able to monetize its offshore gas reserves, Africa’s third largest after Nigeria’s and Algeria’s. The gas fields, off the country’s northern coast, were previously expected to attract $120 billion of investment. Production facilities planned by  TotalEnergies SE and ExxonMobil Corp. would have cost about $20 billion each, more than Mozambique’s gross domestic product, but both stalled because of an Islamic State-linked insurgency.

The Coral-Sul Floating LNG offshore facility, operated by Eni SpA, started producing the super-chilled fuel that allowed for the first gas export to Europe. The production platform has a capacity of 3.4 million tons per year of LNG — equal to about one-third of the UK’s imports last year.

“We are trying to solve the problem that forced those companies to interrupt works,” Nyusi said, referring to the insurgency in the country’s north. “We are focusing on bringing back stability — any day, without a specific date, works could start again.” 

Still, because of instability, it’s uncertain to what extent Mozambique’s projects will succeed and provide the income the government is banking on to transform the nation’s economy. The insurgency that began in the region in 2017 has left more than 4,400 people dead and displaced nearly a million, and prompted TotalEnergies to suspend its project.

Nyusi said that his administration has come a long way in fighting the militants, but isn’t in a position to say when full normalcy will be restored.

Nyusi won presidential elections in 2014 and 2019 as the candidate for the FRELIMO party, which has dominated Mozambique’s Assembly of the Republic in every election since 1994. He didn’t say whether he will be running for a third term in the next elections, scheduled for 2023. 

“I don’t believe this is a question for now,” he said. “Questions for now are food for the people, power, hospitals, schools.”

Stranded assets

Much like other African countries looking to tap into gas reserves, Mozambique risks its assets becoming stranded in just a few years’ time, several nonprofit groups warned. That could happen before the end of this decade, when the short-term energy crunch eases and Europe drastically reduces demand for fossil fuels as part of an effort to eliminate net greenhouse gas emissions by mid-century. 

“All these assets in countries that have bet their long-term strategy on this relationship with Europe will become stranded in the long term,” said Kofi Mbuk, a senior cleantech analyst at Carbon Tracker. “African governments are going to be left in a state of economic turmoil if they bet on gas.”

African countries should instead leapfrog fossil fuels and bet on renewable energy, Mbuk said. The cost of solar in the continent has fallen by more than 50% over the last decade and could nearly halve again by 2030, making it cheaper to generate power by building new solar than continuing to run existing coal and gas plants, according to research by Carbon Tracker.

Most of Africa’s largest gas projects are led by companies headquartered outside of the continent, according to a different piece of research by several non-profits, including the German environmental and human rights organization Urgewald. Their report questioned whether African countries and their populations will benefit from extracting and selling gas.

“It’s the old story of Africa: the global North, especially Europe, using Africa’s resources for its own purposes and to feed its own fossil fuel addiction,” said Urgewald director and report lead author Heffa Schuecking. “It has nothing to do with serving Africa’s energy interest.” 

--With assistance from .

More stories like this are available on bloomberg.com

©2022 Bloomberg L.P.