SA banks are part of a consortium that will provide $15bn (R260bn) to fund Total's Mozambique gas project, bucking the trend that has seen investment declining in the oil and gas sector.
The consortium, which includes RMB, Standard Bank and Absa Corporate & Investment Banking will provide the largest private sector investment in Africa, which is equal to Mozambique’s national GDP.
The funding accounts for a large portion of $25bn project, which will comprise a two-train plant to liquefy natural gas for export. The project will exploit a natural gas find in the Rovuma basin off the coast of northern Mozambique.
The sizeable investment comes as the oil and gas industry reins in spending amid falling prices and market demand due to the coronavirus pandemic.
Oil and gas majors, as well as national oil companies, have slashed spending budgets — some by more than a third — affecting projects. Investor sentiment has also soured as climate change concerns escalate.
Amid the pandemic and ultra-low oil and gas prices, Royal Dutch Shell canned its plans for a liquefied natural gas (LNG) project in Louisiana, the US, and Exxon Mobile has delayed taking the final investment decision on its Rovuma LNG project not far away from Total’s project in Mozambique.
Jonathan Ross, head of oil and gas coverage at RMB, said the funding deal is a remarkable achievement given current circumstances.
“The backdrop could not have been worse for Total and partners to raise huge volumes of long-tenor funding — the economic fallout of Covid-19 has put enormous pressure on banks’ funding and capital, and has triggered an oil price crash,” Ross said.
The Mozambique LNG project is expected to generate as much as $40bn in revenue for the government over its lifespan. Ross said gas developments will have a potentially “transformational impact” on the impoverished nation, by not only contributing to energy security, but also by providing jobs and boosting the economy.
SA is set to benefit as a key source of goods and services for the project. It is also a potential destination for some of the gas produced.
“These projects are also in line with FirstRand’s fossil fuels policy which has seen FirstRand moving its financing portfolio more towards natural gas, as a key transition fuel for the shift to lower carbon global energy supply,” said Ross.
Total acquired the Mozambique LNG project, along with other African assets from Anadarko, in September last year when the US company was bought by Occidental Petroleum.