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Senegal's crunch year

With two major projects ready for sanctioning, 2018 will be pivotal for the country's upstream aspirations

Senegal is undergoing a transformation. The bustling streets of the capital Dakar play host to a forest of construction sites spawning office blocks and smart apartment buildings, while the opening in December of a $0.6bn out-of-town airport should enhance the country's credentials as a regional economic hub.

All this reflects an economy growing at a clip-more than 6% recently; faster than it has for years—an expanding urban middle class and fast population growth. One of Africa's most vibrant and effective democracies, the country has also proved to be a beacon of stability in a region where the neighbours' politics are often less than transparent and afflicted by Islamist violence.

But Senegal remains a poor country, where overall income levels are still low. According to World Bank data, gross national income per capita was around $950 in 2016, only a third higher than in the late 1980s. Rural poverty contrasts starkly with the expansion of Dakar, where around a third of Senegal's 15m or so people are estimated to live. Transport and social infrastructure is getting better, but struggling to keep pace with the demands of the growing population.

The government of Senegalese President Macky Sall is acutely aware of the benefits that could arise from converting a string of world-class offshore oil and gas discoveries since 2014 into lucrative production developments.

And this is the year in which those developments will get the green light—or at least that's the plan.

The partners in the SNE oil development 100km off Dakar—led by Cairn Energy and Woodside Energy, as well as BP and Kosmos Energy which are developing the Greater Tortue gas finds that straddle the Senegal-Mauritania border to the north—hope to have made final investment decisions (FIDs) on their projects by the end of 2018. Both groups see first production in 2021, if things go well.

$950—Senegal's 2016 income per capita

Senegal produces very little gas (about 2m cubic feet a day) and no oil, despite decades of interest from explorers. If things go well, output of the latter could reach 125,000 barrels a day early next decade. Most would be exported—local consumption is estimated at only around 40,000 b/d (though the data are unreliable).

The companies' plan for FIDs within the year are in part based on a belief that Sall, a petroleum geologist by training and former head of state energy firm Petrosen, knows what it takes to get a hydrocarbons development off the ground.

"The president and the government have been very supportive and they are fully aware of the necessary timescales for getting to first oil in a realistic timeframe," Cairn's chief executive Simon Thomson told Petroleum Economist ahead of my recent trip to Dakar. "The president knows that if we are to deliver as early as 2021, then the government needs to approve the exploitation plan by the end of the year."

Good corporate relations

The companies, not untypically for oil firms, extol their good relations with government throughout the exploration phase of the two projects, which they say have helped rapid progress from discovery towards FID. Cairn's first find was only four years ago. The enthusiasm does seem genuine.

Sall set up Cos-Petrogaz, the strategic orientation committee for oil and gas, to oversee the sector, ensure transparency in its management and to handle allocation and transfer of licenses. While the demarcation of responsibilities in this new system between that organisation, the energy ministry itself, and Petrosen has sometimes been confusing for the explorers, the decision-making process generally seems to work well.

Talking to Petroleum Economist at BP's discreet new office, adjacent to Dakar's scenic seafront corniche, Géraud Moussarie, the company's head of country for Senegal, said dealing with energy-sector authorities had been straightforward compared to his experience in some other parts of the world.

"The people here are very high calibre and very energised. They have focused, quite rightly, on governance from a very early stage." He said he was impressed by efforts to ensure the country conformed with the requirements of the Extractive Industries Transparency Initiative, whose local branch is already focused on Senegal's mining sector.

Overcoming cross-border tensions

Of the two developments being pursued, the task of reaching an agreement between partners and politicians looks simpler for the SNE project, given it lies entirely within Senegalese waters, and is envisaged purely as an export project via a floating production, storage and offtaking facility.

Greater Tortue is more complex; requiring agreements with and between both the Senegalese and Mauritanian authorities on how the proceeds, investment and gas should be split.

The likely use of a floating liquefied natural gas plant for the project might help. It would reduce the potential for tension about where to build an onshore plant—on which country's land—as well as hastening first gas production. Still, reaching cross-border arrangement over the financial details and the possible allocation of gas to local markets via pipeline could prove a fraught business.

Senegal produces very little gas and no oil, despite decades of interest

The two countries don't see eye-to-eye politically—Mauritania has a history of strongman politics and has already been through two coups since the turn of the century. Prominent Mauritanian opposition figures, fearing persecution at home, have been allowed to base themselves in Senegal, raising protests from Nouakchott.

Despite the grudges, the two states have managed to cooperate successfully on management of the Senegal River, which divides them, including the operation of a major hydroelectric scheme. The benefits of reaching agreement on a joint hydrocarbons development may well overcome any mistrust and a lot of effort is being put into bolstering cooperation. Teams from both sides and the companies meet regularly.

BP's Moussarie said he held frequent meetings with officials from both countries and that both governments had dispatched teams for discussions at BP Exploration's base in Sunbury-on-Thames, near London.

"We've been on track for FID towards the end of the year, and are still very much on track for that," he said. "It's a matter for the two states, but I think there is a real willpower to make things happen here."

This article is part of a report series on Senegal. Next article is: Senegal—the start of a beautiful friendship

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