Political risks loom amid Senegalese oil ramp-up

Crude exports from Senegal’s maiden project have ramped up to 100,000 b/d just three months after startup, shipping data shows, even as its new government presses ahead with contentious plans to review hydrocarbon contracts.

Australia’s Woodside Energy brought its Sangomar oil development online in June, making the West African nation a crude producer for the first time.

The project, located off the Senegalese capital Dakar, exported around 70,000 b/d until July but saw volumes rise to 100,000 b/d in August, according to data from S&P Global Commodities at Sea(opens in a new tab). On Sept. 13, a Woodside spokesperson confirmed to S&P Global Commodity Insights that the company "achieved [a] nameplate capacity of 100,000 b/d at Sangomar in July."

Sangomar crude has medium sour qualities analogous to grades such as Oman and Norway’s Johan Sverdrup, according to Woodside.

Initially, cargoes were dispatched to Malaysia and Europe, but buyers in China have come in strongly for Senegalese barrels in August and September.

The production boost is a further blow for OPEC and its Russia-led allies, who are battling to shore up the market amid sinking oil prices and high supply from non-OPEC+ producers.

With the alliance keeping millions of barrels offline and delaying plans to taper their cuts, OPEC+ risks losing market share to producers like Senegal, particularly when it comes to meeting demand from China, the world’s largest crude importer.

Senegal is expected to reach its next milestone in the fourth quarter, with BP and Kosmos Energy due to bring their giant Greater Tortue Ahmeyim gas field online. The delayed GTA project, which straddles the Senegal-Mauritania border, is expected to produce 2.3 million metric tons per year of LNG in its first phase.

Separately, Houston-based Kosmos Energy is seeking a partner for its Yakaar-Teranga gas project, which plans to supply gas to the local market and LNG for export.

Despite facing delays, the three projects are expected to generate a significant hydrocarbons windfall for Senegal’s government, led by former tax inspector Bassirou Diomaye Faye, who won a landslide election victory over the ruling coalition in March.

The government of former president Macky Sall saw the nascent oil and gas sector as key to revamping Senegal’s economy and stopping the flow of young Senegalese to Europe.

Parliament dissolved

Faye and his anti-establishment prime minister Ousmane Sonko -- who was barred from running in the March poll -- have vowed to review oil and gas and mining contracts to ensure they align with the national interest, rattling investors.

On Sept. 12, Faye dissolved the country’s parliament -- in which the opposition held a slim majority -- “to ask the sovereign people for the institutional means to bring about the systemic transformation that I have promised to deliver.”

Mucahid Durmaz, senior West Africa analyst at Verisk Maplecroft, said Faye’s Pastef party is “well placed to win a parliamentary majority in the snap vote due to the present political landscape. The fragmented opposition lacks momentum and public appeal to pose a significant challenge.”

Victory “would exacerbate statist policies to extract greater revenue from the energy sector, which risks undermining plans to transform Senegal into a leading oil and gas producer in the region,” he added.

Faye’s government has already ordered an audit of the energy sector and set up a commission of experts to review hydrocarbons contracts, but “progress has stalled due to the rift between the executive and the opposition-led parliament,” Durmaz said. Stringent tax assessments could follow.

In a March statement, a Woodside spokesperson told Commodity Insights: "Our experience has shown that the most successful jurisdictions have been those that work in partnership with industry, respect contract sanctity, and create investment certainty.”

However, an energy company source -- speaking on condition of anonymity given the sensitivity of the situation -- said the government’s rhetoric had softened in recent weeks. Public statements about contract renegotiation have given way to reviews, the source said.

Despite the talk, they added, “I’m not aware of anything actually happening in real life.” Most energy and mining contracts are thought to contain stabilization clauses to shield investors against legislative or regulatory changes.

“Given the vital importance of the energy sector to Senegal’s economy, the government is unlikely to take hostile steps against foreign operators,” said Durmaz. “However, the government's increased scrutiny of tax assessments and corporate earnings risks eroding confidence in what has been an attractive destination for investors.”