Senegal seeks to cash in on global dash for gas

President Macky Sall of Senegal has become a popular figure on the international stage. His country’s gas reserves, from which exports are due to start in the next couple of years, are now the target of intense interest by European leaders desperate to find alternatives to Russian gas following Russia’s invasion of Ukraine in February 2022.

When German Chancellor Olaf Scholz visited Senegal in May, he said securing LNG supply from the country was “a matter worth pursuing intensively”. The UK is already heavily involved in the offshore sector, where BP is the operator for the gas export projects. The EU’s energy commissioner dropped into Dakar earlier in the year.

Polish President Andrzej Duda visited Senegal and fellow African hydrocarbons producers Nigeria and Cote d’Ivoire in early September to discuss the energy crisis among other topics – Poland’s liquefied natural gas (LNG) import terminal has already received its first shipment of Nigerian LNG and is keen to secure future supply.  

Sall, for his part, has been playing up Europe as a destination for LNG, noting that Senegal’s position at the western extremity of Africa puts it just a few days’ shipping time from European markets, while also suggesting there would be competition from Asian buyers.

Sall’s strategy pays off

This keen interest highlights the shrewdness of Sall’s decision to prioritise easier-to-fund and faster-to-build offshore hydrocarbon export developments over more costly large-scale projects with more onshore facilities and more early-stage gas going to the domestic market.

By agreeing to deals that kept the upfront operational and financial costs and risks to levels deemed acceptable for international oil companies (IOCs), Senegal is now on course to be a gas exporter by 2023, with enough production to serve markets abroad and at home for decades if demand holds up.

That would be just eight years after commercial gas reserves were discovered in Senegalese waters – a fast turnaround in the context of African hydrocarbons projects. The norm on the continent is years of delays to projects due to financial disagreements and political uncertainties, especially in states such as Senegal with no track record of oil and gas production.

Senegal’s history of political and economic stability and good international relations along with Sall’s background as a geological engineer with hands-on experience of the hydrocarbons industry have all played their part in smoothing the way for gas development.

First gas production due in 2023

Senegal’s first exports will come from reserves straddling the maritime border with Mauritania in deep water. These are being developed on behalf of both countries by BP and its partner Kosmos Energy in the Greater Tortue Ahmeyin (GTA) project, the product of successful cooperation between two politically, culturally and economically distinct neighbouring countries.

For Phase 1 of the project, BP is using a 2.5m tonnes/year floating LNG production facility, which is fed by pipeline from a floating production, storage and offloading vessel (FPSO) over the field. Most of this output will go for export. The field has an estimated gas production potential of around 15 trillion cubic feet – enough for at least 30 years of production, according to BP.

Despite Covid-related construction delays for the FPSO, which is being built by Cosco in China under contract to Technip, first production is still expected by end-2023.    

A final investment decision on developing Phase 2 of the project is due before the end of 2022. The concept for that has yet to be finalised, but it could be another similar-sized floating LNG (FLNG) project.

Senegal also has another commercial find further south, entirely in its own waters, called Yakaar-Teranga, which is also being developed by BP and Kosmos. This find is estimated to hold around 20 trillion cubic feet of gas.

It is with Yakaar-Teranga that the economic boost for Senegal beyond the impact of export revenues will kick in. President Sall has said around half of production from the development would go to the domestic market as feedstock for power stations, fertiliser and ammonia plants and other industries, with the rest going for export.

A final investment decision for Yakaar-Teranga is also expected in the next few months with production possible by 2024, potentially using a similar set up of FPSO and FLNG vessel as deployed at GTA, with the addition of a gas pipeline to shore to serve domestic customers.

In addition to the gas developments, Senegal is also set to become an oil producer. Australia’s Woodside is due to start production in 2023 from a 100,000 barrels/day FPSO on the Sangomar field, 100km offshore from the capital Dakar. A second phase of that project, which is likely to be of a similar size and cost around $2.5bn, is planned, though no development timetable has been published yet.

Future challenges

While the short-term prospects for hydrocarbons exports are positive, due to the impact of the Ukraine war on global supply, the risk remains that that freshly discovered reserves in Senegal and elsewhere may be not be exploited to their full potential if global fossil fuel demand falls in the next 10-20 years.

Sall, who is the current chairperson of the African Union under a rotating system, is one of several African leaders calling for natural gas to be regarded as a legitimate transition fuel for African nations.

Despite the progress with Senegal’s hydrocarbon’s projects and a buoyant global energy market for producers, it hasn’t been plain sailing for Sall at home. The government has been criticised by international non-governmental organisations and opposition parties for a lack of transparency in drawing up some oil and gas contracts with foreign firms in the past.

Sall’s ruling coalition is less popular at the polls than it was, winning only a narrow victory in legislative elections in August 2022, against a backdrop of economic adversity for many Senegalese due to the impact of the Covid pandemic and high fuel prices, as well as accusations that opposition politicians are being muzzled.

There is also concern that Sall has yet to rule out standing for a third time in presidential elections in 2024, despite a two-term limit under the existing constitution. However, the risk of losing, given the opposition’s growing electoral strength, may yet deter him, according to regional analysts.

But whoever is president after the next election should have access to the country’s first oil and gas revenues to bolster opportunities for economic growth.