Picture: Tiksa Negeri/REUTERS/Taken on February 19, 2023 – Senegalese President Macky Sall. Senegal’s citizens ought to avoid violence and embrace the stability that will facilitate oil and gas development, which will put them in a better position to create solutions to their real political grievances, the writer says.
By NJ Ayuk
Last November, the Coral South LNG consortium began exporting liquefied natural gas (LNG) from Coral, an offshore field in Mozambique’s Rovuma basin. The group produced and loaded its first cargo on the Coral Sul, the world’s first deepwater floating LNG (FLNG) ship, and delivered it to Europe, where buyers have been looking eagerly for new suppliers ever since the Russian invasion of Ukraine. It has exported several additional cargoes to Europe since then and has continued to operate without interruption.
This development isn’t just a triumph for Eni, the Italian major that’s leading Coral South LNG, or for its European customers. It’s also a triumph for Mozambique, which is now the sixth African country to become a large-scale producer of LNG — and the first to take this step since 2013. It indicates that the Mozambican government’s efforts to attract and retain investors have paid off, and it ought to signify that the country’s offshore reserves have successfully been opened for commercial development.
It’s worth noting, though, that Mozambique’s offshore gas sector isn’t exactly all the way open yet.
Let me explain what I mean.
Coral South LNG was always supposed to be the first consortium to export gas from Mozambique, but it never expected to spend much time as the only party to do so. It expected to be joined in short order by Mozambique LNG, a group led by TotalEnergies of France that plans to extract gas from another field in the Rovuma basin. This second consortium was scheduled to start production in 2024.
If the second group had met its deadline, Mozambique’s gas production — and its status as a commercial producer of gas and LNG — would have levelled up significantly in a relatively short period of time. Mozambique LNG was designed to be far larger in scale than Coral South LNG, with two trains turning out 12.88 million tons per annum (mtpa), compared to a single train with a capacity of 3.4 mtpa.
But things changed in 2017 because of an insurgency in Cabo Delgado, the northernmost province of Mozambique. That conflict eventually reached the Afungi Peninsula, where TotalEnergies was building its LNG plant. It led the company to declare force majeure in April 2021, saying it could not resume work on the plant until the security situation in the area was stabilised.
Now, more than two years later, TotalEnergies is reported to be on the verge of announcing an official restart to construction after reviewing the outcome of a multilateral peacekeeping mission and making plans to support residents of host communities. Even so, it has said it won’t be able to start exporting LNG until at least 2026-2027. (There are hints that 2027 is a more realistic guess.)
Therefore, because of the violence in Cabo Delgado, Mozambique has to wait at least three extra years before its gas sector is in a position to outgrow Coral South LNG’s capabilities.
Moreover, it will also have to bear the consequences of the delay. It will have to bring its financial projections into line with not being able to collect any of the revenues it might have earned as an exporter of additional LNG before 2027. It will also have to forego the opportunity to lock in market share now under long-term contracts and instead bear the risk that gas demand will diminish by the time the plant starts production.
These are lost opportunities.
And that brings me to Senegal. At the moment, Senegal is under severe political strain.
The African Energy Chamber (AEC) commends President Sall for everything he’s done to promote and secure the future of Senegal’s oil and gas industry, but I’m not writing this essay for the purpose of taking sides in this debate.
Instead, I’m writing this essay as a reminder of the importance of maintaining stability and avoiding violence when hydrocarbon development — and all the economic benefits that have the potential to follow it — are at stake.
You see, the timing of this unrest is incredibly unfortunate. Senegal isn’t only in the run-up to the next presidential election, which is scheduled to take place in February 2024. It is also just a few months away from beginning commercial production of both crude oil and natural gas. Australia’s Woodside Energy is due to achieve first oil at the offshore Sangomar block before the end of 2023, while the British giant BP and its US-based partner Kosmos Energy are on track to reach a similar milestone at Greater Tortue/Ahmeyim (GTA), a cross-border gas block shared with Mauritania, in the fourth quarter of this year. BP and Kosmos plan to process gas extracted from GTA in an FLNG vessel for export, with most of the resulting LNG going to the European market.
These projects promise to be very beneficial for Senegal, which is a shareholder in both Sangomar and GTA through Petrosen, the national oil company (NOC). They will generate revenue directly, in the form of taxes and other payments, and indirectly, by increasing demand for the goods and services needed to support the oil and gas sector and other links in the energy value chain — and along the way, they will create many jobs. Meanwhile, in the case of GTA specifically, the project will provide gas for domestic electricity generation, while also launching the process of establishing infrastructure networks to support the development of other offshore gas fields, such as Yakaar-Teranga. As such, it will help alleviate energy poverty in the long run.
If Senegal remains stable, it has a better chance of realising all these benefits no matter which way the political process goes.
But if Senegal continues to be racked by violence and unrest, the likelihood of seeing Woodside delay first oil at Sangomar and BP postpone first gas at GTA will increase — again, no matter which way the political process goes.
And we already know from the example of Mozambique that such delays have consequences.
They push back the date by which oil- and gas-producing states can begin reaping the benefits of their natural resources – the financial benefits of fuel sales, the economic benefits of market share and increased investment, and the fiscal benefits of increased payments to the state treasury. They force the revision of plans for government budget spending, and they force the producer to bear the risk of future commodity market fluctuations.
Senegal doesn’t have to accept this risk.
Instead, its citizens can invest in their own future right now. To put themselves in a better position to create solutions to their real political grievances, Senegal’s citizens ought to avoid violence and embrace the stability that will facilitate oil and gas development.
NJ Ayuk is Executive Chairperson, African Energy Chamber
Thia article was first published on African Energy Chamber