TotalEnergies CEO: Mozambique LNG restart is not a matter of costs

French energy giant TotalEnergies had “good” discussions with Mozambique LNG contractors and they agreed not to inflate the costs of the contracts, according to Patrick Pouyanne, CEO of TotalEnergies. The CEO will “soon” meet with the President of Mozambique to discuss security in the country and the restart of the giant project.

TotalEnergies declared force majeure on the Mozambique LNG project in April 2021 and withdrew all personnel from the site due to new attacks.

Mozambique LNG includes the development of offshore gas fields in Mozambique’s Area 1 and a 12.8 mtpa liquefaction plant at the Afungi complex.

Besides TotalEnergies, other partners in the project are Japan’s Mitsui, Mozambique’s ENH, Thailand’s PTT, and Indian firms ONGC, Bharat Petroleum, and Oil India.

The project’s EPC contractor is CCS JV, a venture between Saipem, McDermott, and Chiyoda.

Last year, Pouyanne said the company was “not in a hurry” to resume the project, pointing out that security, human rights, and maintaining costs are the main three elements to make the decision to return to the Afungi site in the province of Cabo Delgado.

Pouyanne said in September the last condition for the company and its partners to resume the project is that the “contractors stick to their EPC contracts and not inflate the costs, otherwise we can wait longer.”

In February, he said that TotalEnergies hopes to resume construction on its giant Mozambique LNG project by the middle of 2024, with TotalEnergies “remobilizing the contractors”.

Asked about whether Mozambique LNG should be delayed or perhaps reengineered a bit following some of the recent cost inflation during the company’s first quarter results call on Friday, Pouyanne said that the restart of the project is not a matter of cost.

“I know one of my colleagues wants to float that idea, but it’s not true. I mentioned that few months ago that we were discussing with contractors on Mozambique because they raised their costs,” he said.

“We had good discussion with them. So the good news that I can confirm today is that in fact, we are back to.. we are on the good contracts with all of them. We realigned all the contractors because their interest is that we can execute the project. The interest is not to force us to retender or redesign,” he said.

Security

Pouyanne said that “we have a good concept, strong concept, resilient one. So we work with all of them. And today, we have contracts which have been initial to restart the project. But we have other dimension in that project.”

“And again, on the security side, I would say there have been a lot of things. The security in Cabo Delgado is okay. There is no incidents, no events. It’s well controlled. I will meet soon President Nyusi from Mozambique to review it with himself,” he said.

“And so I would say on the southern part of Cabo Delgado, it’s quite far from where we are. There have been some incidents. But there again, they are redeploying some forces,” he said.

“And by the way, again, that part is first, I would say people are asking me, will you lift the force majeure. But the first thing to be done by Mozambique, which is in charge of the sovereignty and security, is to tell us if we could lift it before I decide,” he said.

“Let’s do it in the right order. I would say don’t try to ask privately owned companies to decide about something which is not fully in our hand.. It is the duty of Mozambique, and we are working with them,” he said.

He said the restart of the project is a “matter of having the right conditions to lift the force majeure and to move on progressively.”

Yamal LNG sanctions

During the call, Pouyanne also answered a question regarding potential EU sanctions and the Novatek-operated Yamal LNG project in Russia.

The 17.4 mtpa Yamal LNG plant in Sabetta has three 5.5 mtpa liquefaction trains, and one smaller unit with a capacity of about 900,000 tons per year which features Novatek’s domestic liquefaction tech, Arctic Cascade.

Besides Novatek that holds 50.1 percent in Yamal LNG, other shareholders include TotalEnergies and China’s CNPC with a 20 percent stake, each, and the Silk Road Fund that owns a 9.9 percent share.

In addition to the stake in Yamal LNG, TotalEnergies has a stake in Novatek’s Arctic LNG 2 and it declared force majeure on this project due to sanctions.

In December 2022, TotalEnergies also wrote down its 19.4 percent stake in Novatek and withdrew the representatives of the company from the board of Novatek

“I will tell you, if EU sanctions Yamal LNG, the price of LNG will go up quickly. And globally, our portfolio will benefit of it. So.. it’s a positive if there were sanctions, not a negative because the cash from Yamal is quite limited contrary to what you might all think,” Pouyanne said during the call.

He said that TotalEnergies does not receive dividends from Yamal LNG since 2023.

“Second, the LNG business, because I remind you that because of the risk of sanction, we decided not to hedge the volumes of Yamal. That means that this year, we have sold Yamal in Europe at TTF price, and we buy it at a Brent basis. That means it’s not a very profitable operation given this year contract, ” he said.

“So yes, if there are sanctions on Yamal by Europe or by EU, we will have to exercise force majeure for sure on some of the contracts,” Pouyanne said.

“There is two contracts, one in for Europe, which we can exercise. There is one for Asia on which we’ll have to look more carefully,” he said.

“But in my view, I don’t think the European leaders.. want again to see a crisis in Europe until 2027,” he said.

“And what I understand is that they might have some ideas, but from 2027, not before,” Pouyanne said.

“Again, for TotalEnergies, it’s neutral. It’s even a plus if there were some sanctions. So maybe people should think I’m a little provocative. But in fact, that’s a reality. When I look to these projects, and it’s not billions of dollars in cash flows. It’s more a few hundreds of million dollars, which we can absorb easily, which have already been largely absorbed since 2022 in the company by other projects,” he said.

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