Understanding the current market impacts on the Mauritania and Senegal oil and gas sector

GlobalData Energy 28 July 2020 (Last Updated July 28th, 2020 14:07)

The MSGBC Basin comprises of five countries however only one of which (Senegal) currently has oil and gas production and along with Mauritania is expected to see significant growth in the sector in the 2020s.

Understanding the current market impacts on the Mauritania and Senegal oil and gas sector

The MSGBC Basin comprises of five countries however only one of which (Senegal) currently has oil and gas production and along with Mauritania is expected to see significant growth in the sector in the 2020s. Spearheaded by BP, the Tortue/Ahmeyim cross-border gas field, once all three phases have been developed, will be able to supply 10 MPTA of LNG to the global market and represents an opportunity for considerable growth in the two countries. In order to develop this field required collaboration between Mauritania and Senegal and has now been delayed by 12 months due to the COVID-19 pandemic and resultant drop in oil prices, forcing the participating companies to defer their 2020 capex spend.

Mauritania and Senegal have had oil and gas production since 2006 and 2002 respectively, but only on a relatively small scale. The major discoveries in the basin prove the significant hydrocarbon potential and upcoming developments will boost oil and gas production significantly. The Sangomar field will be Senegal’s first oil field development with peak flows of 100,000 bd and represents a substantial new income stream for the government. The Tortue/ Ahmeyim LNG project is a cross-border collaborative development between Mauritania and Senegal and will form the base of these two country’s gas productions for the years ahead. Tortue Phase 1 will add 1.25 MTPA and each subsequent phase is expected to add a further 1.85 MTPA to each country’s portfolio for a total of 5 MTPA each.

The large LNG projects in Mauritania and Senegal have break-even gas prices ranging from US$5 – 8/mcf which is typical for the region although a recovery in LNG prices will be required for investor confidence. However, there are a handful of smaller gas projects in Sub-Saharan Africa with lower break-evens and considering the current economic environment, these are more likely to see investment in 2020. Aside from Tortue Phase 1 and Sangomar, the other projects in Mauritania or Senegal haven’t received FID which gives the participating companies time to reduce costs and optimise development plans to make the projects as robust as possible.

Due to the impacts of COVID-19 on the oil and gas industry from low oil prices and social distancing causing delays to projects around the world, this led to delays with the Tortue/Ahmeyim project which will slow the outlook for growth in Mauritania and Senegal. However, this slowdown in growth outlook will not be felt for long as it is just one year and the Sangomar development is still on track to see first oil in 2023 as originally planned. As of 27th July, it has been announced that the Russian giant Lukoil has reached an agreement to acquire Cairn’s share in the Sangomar field, showing their confidence in the project.

The LNG projects along with Sangomar represent a long-term strategy for both countries due to the considerable boost in fiscal take for each government. Fiscal revenue and foreign investment for both countries will help to build out domestic oil and gas infrastructure and prop up economies. Laying out the critical oil and gas foundations will attract further attention to the MSGBC basin and both countries must optimise oil and gas revenue wisely to pave the way for a successful petroleum-based future.