Bad Deals on Gas Developments Increase Economic Risk for Mozambique

December 14, 2023, Cape Town—The development of major gas deposits off the coast of Mozambique in East Africa could fail to boost the country’s economy as predicted, with future demand from European markets far from guaranteed, new research reveals. 

Mozambique's liquified natural gas (LNG) deposits were heralded in 2010 as a certain route to economic prosperity for the country—one of the world's poorest—when first discovered. In 2016, the International Monetary Fund (IMF) estimated total revenues could reach USD 500 billion by 2045. 

But that figure now appears to be "detached from reality," say the authors of a new report, Navigating Decisions: The risks to Mozambique from liquified natural gas export projects.

Instead, the report warns, the country's LNG plans could ultimately backfire, undermining Mozambique's economy and sovereignty, impacting the environment, and worsening social tensions. 

"The LNG bonanza in Mozambique looks increasingly risky," says Richard Halsey, a policy advisor at IISD and lead author of the report.

"The Mozambican government has promoted LNG as a panacea to its economic woes, but our study shows big profits may fail to materialize. Furthermore, it is clear that the path the government is taking to accommodate powerful foreign interests puts Mozambique in a vulnerable position, where potential benefits lie in the distant future and existing debt liabilities remain with the state, not with the international fossil fuel companies which will benefit immediately."

Since the discovery of the gas deposits, Mozambique’s development strategy has relied heavily on the supposed financial returns from future gas projects, which were forecast to increase GDP, spur industrialization, and create jobs. 

Twelve years later, this has not happened, and the country is now in a worse socio-economic position than before. Growth in GDP has decreased while debt, inequality, unemployment, and poverty have increased, with Cabo Delgado, the coastal region where LNG development is most focused, the worst affected.

Halsey adds: "The social impacts linked to LNG projects cannot be understated. Gas development has already seen hundreds of forced relocations, the majority of new jobs going to foreign workers, and the severe intimidation of journalists. It has also been flanked by an escalation of violence from Islamist jihadists this year. This does not paint a promising picture for the future, but it is not too late to change course."

Volatility in European markets means that while demand for LNG is currently high, it is not assured over the long term. Following Russia's invasion of Ukraine and subsequent trade sanctions reducing the supply of Russian gas, European countries have scrambled to secure LNG supplies. This has put Mozambique's gas projects among the key prospects for EU import deals.

However, the accelerating global shift to renewables, combined with growing concern over fossil fuels' climate-altering impacts, means developed markets are increasingly committing to slashing their imports of coal, oil, and gas in the long term, researchers found. 

The expansion of LNG operations in other countries also threatens to reduce Mozambique's profit as supply lines grow and competition increases. 

Despite the long-term outlook, international finance for fossil fuels in Mozambique has been far greater than for renewables. By the end of 2020, support for renewables in the country stood at a total of EUR 201 million. In contrast, international public finance for TotalEnergies' LNG project was 60 times greater in 2020, at USD 13.8 billion. 

Instead of forging ahead with LNG projects that aren’t yet operational, say the report authors, Mozambique would be better off pursuing less risky industries with long-term economic and environmental sustainability at their core and clear socio-economic benefits. 

Media Contacts

Richard Halsey, Policy Advisor, IISD’s South Africa team: [email protected]
Harry Cockburn, Communications Consultant, IISD: [email protected]