Equatorial Guinea gets tough in battle to maximise advantage before reserves run out
In publicly attacking its biggest oil producer and main gas buyer Gabriel Nguema Lima has given voice to concerns that pioneering contracts to develop the industry were too favourable to IOCs, but also that Malabo must do everything possible to maximise its returns as reserves dwindle, writes Jon Marks.
Vice Mines, Industry and Energy Minister Gabriel Nguema Lima came to London on 17 June with the intention of passing messages to two of Equatorial Guinea’s biggest energy industry ‘partners’ with the utmost clarity. The first was that while other international oil companies had worked to reduce gas burning to acceptable levels, Zafiro field pioneer ExxonMobil Corporation had not – and would consequently “be penalised because it could not stop flaring.” The second message was for BG Group, whose 17-year LNG supply contract takes all of Equatorial Guinea Liquefied Natural Gas Company (EGLNG)’s Train One output: the British gas group was making “extremely unfair” windfall profits and should hand over some of its production to compensate.
Nguema Lima used one of his favourite venues, the stage of CWC Associates’ annual Gulf of Guinea Oil & Gas conference (GOG11), to make the disputes public. The Ministry of Mines, Industry and Energy (MMIE)’s gripe with ExxonMobil’s failure to tackle flaring at the 230,000 b/d Zafiro producer had been bubbling around for some time, but Malabo’s frustration had not been so brutally made clear, while the dispute with BG was even fresher news. Nguema Lima said “the ministry is unhappy about [BG’s] windfall profit,” and had told Sociedad Nacional de Gas de Guinea Ecuatorial (Sonagas) – of which he is a board member – to obtain better terms. MMIE was not yet poised to take action, and thus his intervention in London was “just a message”.
Company sources told African Energy this was the public airing of a dispute that had emerged when BG on 1 June received an angry letter personally signed by Nguema Lima. The minister said MMIE had asked the state gas company and BG to hammer out an agreement – it was “leaving the door open” to them; otherwise it will act. Answering African Energy’s question of whether negotiations were under way with BG and if MMIE might take action against other contracts it found questionable, Nguema Lima was explicit that “there is no negotiation” and the ministry wasn’t moving against any other IOCs.
The spat reflects BG Gas Marketing’s status as EGLNG’s anchor buyer – a critical role when the project, generally deemed a success, was taking off (AE 132/18) – and its apparent lack of enthusiasm for any other projects in EG (in contrast to neighbouring Nigeria). The argument may anyway be less dramatic than it first appears: Nguema Lima said EG wanted to be compensated for BG’s “windfall” by being able to sell “excess” gas. BG’s contract is to take all of Train One’s 3.4m t/yr installed capacity, but the plant at Punta Europa actually produces more than this – it may be this “excess” the government wants to market. BG is waiting for clarification.
Flaring debate
Equatorial Guinea last year warned Exxon that it faced a minimum $300m fine if the US giant didn’t come up with a plan to end flaring. In May 2007, Nguema Lima said he wanted Zafiro gas to feed into EGLNG (AE 114/16). On 17 June 2008, he made explicit the threat of near immediate sanction – and added that the fine, whose amount has still to be decided, would be imposed by October and be retrospective, calculated back to “the day when negotiations started, that is last year.” Nguema Lima told the subsequent scrum of reporters that if the issue wasn’t quickly resolved “it will happen this summer and [the fine’s size] won’t be peanuts.” He otherwise declined to give any more detail than he had offered during the formal conference session. Dow Jones later quoted Exxon spokeswoman Margaret Ross as saying the US company continued to hold discussions with Sonagas on ways to commercialise the gas produced from its operations.
MMIE is taking a tougher approach to Exxon’s flaring because of the biggest oil producer’s persistent failure to tackle the issue. With Zafiro flaring 175m ft3/d out of the overall 224m ft3/d of gas now flared by EG, Nguema Lima said MMIE was prepared to overrule Sonagas’ demand to delay fining Exxon to allow more time to find a solution. MMIE’s only such action envisaged was against Exxon in Block B as other IOCs were trying to play by the rules; negotiations continued with these.
Flaring at Zafiro is undoubtedly an issue, placing EG tenth in the World Bank-backed Global Gas Flaring Reduction (GGFR) initiative’s list of global offenders. But beneath these debates is a growing realisation that despite some positive results of late – notably Noble Energy’s crude, condensate and gas finds (see Upstream oil and gas) – EG’s reserves are running down. Nguema Lima was bullish, saying three fields held 8.5trn ft3 of reserves. But while BG’s supply contract may run 17 years, some analysts believe EG’s reserves will run for no more than a decade. This helps explain why the government is hoping to structure a multinational supply solution involving Cameroon and Nigeria for the proposed EGLNG Train Two scheme (AE 132/18, 122/16, 115/1). Nguema Lima said Sonagas and MMIE were discussing EGLNG-2 plans, and he saw more progress on the neighbours’ involvement “in the near future”.
Powering the new ‘Singapore of Africa’
Nguema Lima also said the government was mulling plans to use more gas to fuel power plants and industrial projects – which would be included in a gas master plan now being drawn up by Sonagas. Electricity demand is rising fast in Malabo – even before the new capital Malabo II takes off – and a small unit from the Marathon Oil Corporation/Noble-led Atlantic Methanol Production Company (Ampco) plant would be expanded to 100MW, the minister said. There were even plans to expand it further still, to export the power to the mainland via a 30km subsea link from Punta Europa to Kribi and the Cameroon grid.
President Teodoro Obiang Nguema Mbasogo, his son the minister said, saw such international activities as essential to EG’s development. Obiang, in power since he overthrew his monstrous cousin – and fellow Mongomo Fang power-broker – Francisco Macias Nguema in 1979, saw that his country would best be developed not as an oil emirate “like Kuwait”, but as an international hub: “the Singapore of Africa”, Nguema Lima said.
An intriguing aspect of Nguema Lima’s GOG11 presentation was the emphasis he put on non-oil developments. Photos of some impressive new architecture not only provided a counterweight to that morning’s heavy coverage in the British press of the opening of ‘wonga coup’ plotter Simon Mann’s trial in Malabo, but also showed that money was finally being spent on public projects in a country famed for its history of governance abuses. As well as the impressive new Chinese-built multi-sports stadium, new hospitals (with 60 Israeli-trained nurses now working to raise standards nationally), schools and roads (with France’s Bouygues a leading contractor), Nguema Lima showed images of the impressive building housing Marathon, EGLNG and (for now) Sonagas, which was “in line with the president’s vision”. A new MMIE building is planned.
EG has been looking for value-added from its partners. Marathon was praised for its involvement in the anti-malaria drive, as well as construction. African Energy understands BG had been approached to participate in construction projects unrelated to its contract but declined. With 14 upstream operators and a total 21 IOCs active in the country, others may be more inclined to cement relations by providing a range of co-operation. The fact that BG and Exxon have both risked the usually mild-mannered Nguema Lima’s ire suggest they see little future in EG outside their ongoing contracts.
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