Senegal seeks to benefit from the global gas race

As Senegal's first gas export project draws to a close, the search for gas buyers and investors for future development phases is underway.

The country's gas reserves, which are expected to begin exporting within the next two years, are now the subject of intense interest from European leaders desperate to find alternatives to Russian gas after Russia invaded Ukraine in February 2022.

When German Chancellor Olaf Scholz visited Senegal in May, he said that securing the country's LNG supply was "an issue that deserves to be pursued intensively". The UK is already heavily involved in the offshore sector, where BP is the operator of gas export projects. The EU energy commissioner visited Dakar earlier this year.

Polish President Andrzej Duda visited Senegal and other African hydrocarbon producers, Nigeria and Côte d'Ivoire, in early September to discuss the energy crisis, among other issues - Poland's liquefied natural gas (LNG) import terminal has already received its first cargo of Nigerian LNG and wants to secure future supplies.  

Sall, for his part, highlighted Europe as a destination for LNG, noting that Senegal's position at the western end of Africa puts it within days of shipping to European markets, while also suggesting that there would be competition from Asian buyers.

Macky Sall's strategy is bearing fruit

This high level of interest highlights the wisdom of President Sall's decision to prioritise offshore hydrocarbon export developments that are easier to finance and quicker to build, rather than more expensive large-scale projects with more onshore facilities and more early stage gas for the domestic market.

By agreeing to deals that keep upfront operational and financial costs and risks to levels deemed acceptable to international oil companies (IOCs), Senegal is now on track to become a gas exporter by 2023, with sufficient production to serve foreign and domestic markets for decades if demand continues.

This would be just eight years after the discovery of commercial gas reserves in Senegalese waters - a rapid turnaround in the context of African hydrocarbon projects. The norm on the continent is years of project delays due to financial disagreements and political uncertainties, particularly in states like Senegal with no history of oil and gas production.

Senegal's history of political and economic stability and good international relations, as well as Sall's background as a geological engineer with practical experience of the hydrocarbon industry, all played their part in opening the way for gas development.

First gas production expected in 2023

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

For Phase 1 of the project, BP is using a 2.5 million tonnes/year floating LNG production facility, which is fed by pipeline from a floating production, storage and offloading (FPSO) vessel above the field. Most of this production will be exported. 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 the development of phase 2 of the project is expected before the end of 2022. The concept has not yet been finalised, but it could be another floating LNG (FLNG) project of similar size.

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

It is with Yakaar-Teranga that Senegal's economic recovery beyond the impact of export earnings will be felt. President Sall said that about half of the development's output would go to the domestic market as raw material for power plants, fertiliser and ammonia factories and other industries, with the rest going to exports.

A final investment decision for Yakaar-Teranga is also expected in the coming months with production possible by 2024, potentially using a similar FPSO and FLNG vessel configuration as deployed at GTA, with the addition of an onshore pipeline to serve the domestic market.

In addition to gas developments, Senegal is also set to become an oil producer. Australia's Woodside is expected to start production in 2023 from a 100,000 barrel/day FPSO at the Sangomar field, 100 km off the capital Dakar. A second phase of the project, which is expected to be of similar size and cost around $2.5 billion, is planned, although no development schedule has yet been published.

Future challenges

While the short-term outlook for hydrocarbon exports is positive, due to the impact of the Ukraine war on global supply, there remains a risk that newly discovered reserves in Senegal and elsewhere will not be exploited to their full potential if global demand for fossil fuels falls over the next 10 to 20 years.

Macky Sall, who is the current chairperson of the African Union on a rotating basis, is one of many African leaders calling for natural gas to be considered a legitimate transitional fuel for African nations.

Despite the progress of hydrocarbon projects in Senegal and a buoyant global energy market for producers, it has not been easy for Macky Sall at home. The government has been criticised by international non-governmental organisations and opposition parties for its lack of transparency in the drafting of some oil and gas contracts with foreign companies in the past.

The ruling coalition is less popular at the ballot box than it was, winning only a narrow victory in the August 2022 legislative elections, 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 silenced.

There are also concerns that President Sall has not yet ruled out running for a third time in the 2024 presidential elections, despite a two-term limit under the current constitution. However, the risk of losing, given the growing electoral strength of the opposition, could still deter him, according to regional analysts.

But whoever is president after the next elections should have access to the country's first oil and gas revenues to enhance opportunities for economic growth.