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    Equatorial Guinea: “invest or move aside” [LNG Condensed]

Summary

The government of Equatorial Guinea is pushing ahead with plans to develop a gas hub supplied from reserves across the Gulf of Guinea, mainly for LNG production. However, it has struggled to get investors to commit and has become frustrated by the slow pace of development. Further south, Angola too is looking at rejuvenating its gas sector and stimulating new investment. [LNG Condensed Volume 2, Issue 1 - January 2020] - Subscribe to NGW Premium or NGW LNG Condensed (complimentary) to read this article.

by: Neil Ford

Posted in:

Liquified Natural Gas (LNG), LNG Condensed, Exploration & Production, Investments, Political, Cameroon, Equatorial Guinea

Equatorial Guinea: “invest or move aside” [LNG Condensed]

The government of Equatorial Guinea has pressurised foreign firms either to take a final investment decision (FID) on planned oil and gas projects or hand assets over to companies who are prepared to commit themselves. In addition, it has brought international trading house Vitol on to the scene, signing a strategic partnership with the company in December to develop what is described as “a gas megahub” – a multi-user gas processing centre that can handle gas from across the Gulf of Guinea.

The government had long sought to position itself as a regional gas hub by sourcing gas from Cameroon, São Tomé and Príncipe and even Nigeria, with intergovernmental memoranda of understanding signed as long ago as 2007. Local rivalries held up progress, but the government is now confident that it can attract gas from Cameroon at the very least, as well as from the domestic Aseng, Alen and Alba gas fields. The gas is to be used to produce LNG in particular, but also other gas-related products on the main Equatoguinean island of Bioko.

It has been far from plain sailing. A project to develop a floating LNG facility by UK company Ophir Energy failed to gain financing, and Saudi Arabia’s Arabian Energy, which had signed a deal to develop oil and gas infrastructure in the country, dropped out of the project in 2018.

Phased development

The government says the big difference between its plans and those of various investors is that the latter want to embark on a major project at the outset, whereas Malabo prefers a phased approach. The government wants the gas hub to maintain production at the existing EG LNG plant, which has operated since 2007, as well as enabling the development of additional LNG production capacity. EG LNG currently has nameplate capacity of 3.4mn mt/yr.

It is intended that the hub will be supplied by stranded and associated gas, much of which is still flared, as well as more substantial non-associated gas fields. The hub is expected to centre on the Punta Europa gas complex, which already hosts the EG LNG plant, an LPG facility and a gas-fired power plant.

Last April, Noble Energy took FID on developing the offshore Alen gas-condensate field, with all output to be piped to Punta Europa. First gas is due in the first quarter of 2021.

Noble will build a 65km 24-inch pipeline from Alen to Punta Europa, partly to maintain output at the LNG plant, under a backfill agreement with EG LNG. More gas could also come from the country’s biggest oil field, Zafiro, on which gas is currently flared.

EG LNG benefits

The managing director of EG LNG, Bryan Wallace, said: “EG LNG and its shareholders continue to work very hard to achieve this gas mega hub vision by identifying additional gas sources beyond Alen that will not only secure a longer life for Train 1, but also hopefully provide the opportunity to expand on future LNG trains.”

At present, the LNG plant is only fed by Marathon Oil’s Alba field, where output is falling. The government is particularly keen to pursue its hub plans because crude oil production has also dropped from a peak of 390,000 b/d in 2005 to 300,000 boe/day in 2019, only 112,000 b/d of which was crude oil. In addition, an increasing proportion of natural gas production is expected to be reinjected on existing fields to maintain oil production, if new finds are not developed soon.

New licensing

Although Equatorial Guinea is a small country of just 28,050 km2, its strategic location in the Gulf of Guinea gives it 60,000 km2 of maritime territory, of which 48,000 km2 is deepwater acreage. Kosmos Energy, Noble Energy and Trident Energy all made oil discoveries in 2019, while the government launched a new licensing round last April that includes two blocks where gas has already been discovered, in an effort to attract more upstream investment.

One of the two is block EG27, where Ophir Energy had hoped to develop its Fortuna floating LNG project with production capacity of 2.2mn mt/year based on reserves of 3.7 trillion ft3. Ophir, however, was unable to secure the required financing, perhaps because the government was opposed to FLNG and wanted to see gas piped to the planned gas hub.

The block has now been licensed to PJSC Lukoil in partnership with Equatoguinean state oil company GEPetrol. The round attracted 21 bids for the 27 blocks on offer, with 9 awards made all subject to production sharing contract negotiations.

Cameroon cooperation

The government also hopes that the hub can be supplied by the Yoyo and Yolanda gas-condensate fields on the Equatorial Guinea-Cameroon maritime border. The two governments concerned have already agreed to jointly develop them but not how.

Talks may have stalled because Yaoundé does not want industrial development to focus on Bioko, but a compromise now seems to be on the cards.

Liquids separated at Punta Europa, including 40,000 b/d from the Alen project, will be piped to the Limbe refinery in Cameroon, in return for Cameroonian gas moving in the opposite direction. Bioko lies only 32km off the coast of Cameroon, so the pipelines will not be long.

“Invest or move aside”

Reflecting the government’s frustration with the pace of development, the minister of mines and hydrocarbons Gabriel Mbaga Obiang Lima said in November: “We are now in the implementation phase and interested parties should get set to invest or move aside.”

Investors may then have been shaken by the ministry’s decision in December to order Marathon Oil and its partners to dismantle the Atlantic Methanol Production Company (Ampco) plant at Punta Europa for it to be replaced by a modular refinery.

Obiang Lima said: “The Punta Europa complex is the crown jewel in Equatorial Guinea’s gas processing infrastructure and is central to our long-term plans for gas monetization. Due to a lack of investment in the Alba field and the methanol plant, however, a modular refinery would be a more productive project for that space.”

No information on the products to be processed at the plant has been revealed. The existing consortium is to undertake a feasibility study on the project.

The tone and substance of official statements suggest that relations between the government and Marathon have deteriorated. Obiang Lima pointedly excluded the US firm when he said: “New investment is what is needed to continue to drive Equatorial Guinea forward. We are very pleased to be working with companies like Noble Energy, Kosmos Energy and Trident Energy, which remain committed to strong work programmes and new opportunities for growth.”

It appears that the government had also threatened to cancel Noble’s licence for the Alen project, if it did not reach FID on the project quickly, so a positive decision there may have encouraged it to take a hard line with Marathon. However, given that Marathon is the biggest shareholder in EG LNG, the government may be forced to rebuild relations with the company.

Other options for Cameroon

While Cameroon may support Equatorial Guinea’s LNG ambitions, it has produced its own LNG since May 2018. The Golar FLNG project utilises the 1.1mn mt/yr Hilli Episeyo FLNG vessel, which was the world’s second FLNG ship and the first to be converted from an LNG carrier.

Operator Perenco plans more drilling this year on the Sanaga South field in order to boost production on the project. Only two of the four trains are currently in use. Although located on the Atlantic basin, the project sells most of its cargoes to Asian customers. The project also produces LPG and condensate for local consumption.

FID is due on another Cameroon project this year, Etinde, which was originally expected to be an FLNG scheme, but is now focussed on condensates and light oil production. The consortium consists of the UK’s New Age and Lukoil, both with 37.5% stakes, with Bowleven, the former operator, retaining 25%. Reserves on the field are estimated at 1 trillion ft3 of wet gas.

New Age had agreed FLNG terms with the government and awarded a preliminary agreement to SBM Offshore and partners to develop the project following a tender process. Gas could also be piped from Etinde to the Hilli Episeyo, but the pipeline would be more than 100km long, which could make it a more expensive option than piping the field’s products to the nearer Bioko gas hub.

The situation is complicated by Bowleven’s need to renegotiate terms on its Bomono permit, where it discovered natural gas, but on which its licence expired at the end of 2018. The gas in both cases could be used for LNG production or sold to Victoria Oil and Gas, which supplies gas to the domestic Cameroonian market from its Logbaba project.

Under the terms of the existing agreement with the government, Etinde must in any case supply at least 70mn ft3/day to the domestic market. Most Cameroonian gas finds are relatively small and so more suited for domestic supply, FLNG, or sale to a regional gas hub than to a standalone onshore LNG project.

Angolan challenges

Further down the coast, Angola is still struggling to make the most of its gas potential. The Angola LNG plant, which is located on the island of Kwanda, at the mouth of the River Congo, has production capacity of 5.2mn mt/year, with natural gas, butane, condensate and natural gas also available for the domestic market. The plant was built to absorb associated gas from the various offshore oil projects operated by some of the biggest names in the global oil industry: BP, Chevron, Eni, ExxonMobil, Petrobras, Statoil and Total, but will also be supplied by non-associated fields on Angola’s blocks 1 and 2. The pipeline supply network stretches more than 500 km.

The plant is owned by Chevron subsidiary CABGOC with a 36.4% stake, Angolan state-owned Sonagas (22.8%) and Total, Eni and BP, each with 13.6%. The consortium says that the “production process is designed around a ‘two-train-in-one’ reliability concept that allows the plant to continue operating at a reduced rate even when a compressor is offline, resulting in high plant availability.”

However, the plant has been affected by a succession of operational problems since it opened in 2013, most recently by declining gas supplies.

In December, the company said that it had “conducted a controlled shutdown for a minor intervention and plant operations have now been resumed”, but did not say what the intervention was. The longest shutdown was from April 2014 to June 2016 for what were described as “design flaws”.

Although the Angolan oil and gas sector experienced a boom after the turn of the millennium, the high cost of doing business in the country coupled with poor governance saw investment fall and oil output decline from a peak of 1.9mn b/d in 2008 to the current level of 1.2mn b/d, while too little was done to monetize gas production.

According to government figures, most of the 3bn ft3/d of natural gas produced in Angola today is flared. The minister of mineral resources and petroleum, Diamantino Azevedo, said: “Over the years, Angola has somewhat neglected to capitalize on the natural resources that it has to offer. Much of this gas was burned or flared and an opportunity for financial recovery was missed, not to mention the damage that was done to the environment.”

Sector rejuvenation

However, new President João Lourenço is seeking to reform the economy, make it more transparent and encourage investment in hydrocarbons.

Recent changes to industry legislation allow companies to bid to develop gas discoveries on licences held by other firms, in an effort to cajole them into development themselves. Although the cost of developing new ultra deepwater fields could be prohibitive without higher oil and gas prices, this strategy has already begun to pay dividends. Associated gas on Total’s giant Kaombo Sul oil field is being piped to Angola LNG via the same pipeline as gas from Kaombo Norte.

In addition, a group of oil companies– BP, Chevron, Eni, Total and state oil company Sonangol – have banded together in the New Gas Consortium to supply non-associated gas to Angola LNG, an adjacent power plant and a fertiliser factory at a cost of $2bn from 2022 to compensate for falling output on other fields.

US company New Fortress Energy also signed a memorandum of understanding with the government in June to develop an LNG regasification project in Angola to enable the country to join the growing list of countries that both export and import LNG. Angola should be able to satisfy its own gas demand, but the fact that this project is even on the table suggests that it still cannot do so.