On 8 May 2018, Noble Energy signed a Heads of Agreement (HoA) with the Equatoguinean Government, to supply gas to the Punta Europa LNG plant and the Alba Plant LPG facility, both located on Bioko Island. This is the first part of the Government’s gas MegaHub project, announced in May 2018 – which can be viewed as part of its ambition to become a major regional player in oil & LNG in Africa and beyond
Discussions and negotiations surrounding further gas development projects in Equatorial Guinea have been ongoing for a number of years. At present the country produces some 3.4 MMt/a LNG from the Punta Europa plant (also known as EGLNG), which came onstream in 2007, operated by Marathon Oil (60%), with state-owned Sonagas (25%), Mitsui (8.5%) and Marubeni (6.5%). Gas is supplied to the plant via pipeline from Marathon’s Alba gas-condensate field, located some 30 km NW of Bioko Island. According to third party sources, 65 cargoes were shipped from the plant in 2017 to markets including Argentina, China, India, Japan, Jordan, and South Korea. For many years the Government has been eager to see the construction of a second LNG train here, believing that gas reserves from Alba could support a new development. However, there have been repeated questions as to whether this is commercially feasible as reserves at Alba are dwindling and production is expected to fall dramatically after 2019/2020.
The HoA signed with Noble Energy provides a framework for the development of gas from the offshore Alen gas-condensate field, including the construction of a 65km gas pipeline to the facilities at Punta Europa. Gas from the field is currently reinjected. If the project is sanctioned, Noble will monetise an additional 600 Bcfg and the life of the 3.4 MMt/a Punta Europa LNG facility will be extended; however these additional reserves are not expected to lead to an increase in the volumes of LNG produced at present.
The Alen Field is located on Block O/I, where Noble has made a number of discoveries and produces oil and condensate from the Alen and Aseng fields. Other fields on the blocks include the Diega and Carla South oil & gas fields. Noble had submitted a Plan of Development for these fields in 2015, however the Government was unwilling to approve this. Instead, it signed an agreement with OneLNG (a consortium of Schlumberger and Golar LNG) in May 2017 in order to investigate the technical and commercial feasibility of an FLNG project on these blocks, aiming to reach an agreement at some point in 2018. Whilst it is currently unclear what the status of this agreement is it seems more plausible that gas from these fields will now be developed via the onshore plant, in a future phase of development for the MegaHub project, rather than through any new FLNG development, which would likely be far less cost effective then utilizing in-place facilities.
It is also possible that gas from the YoYo/Yolanda field (which straddles the maritime border between Equatorial Guinea and Cameroon, operated by Noble Energy on both sides) may also be eventually processed at Punta Europa. In mid-2017, Noble Energy signed an agreement with both governments to develop the fields jointly. Resources for Yo Yo are estimated at 47 Bcfg and 18 MMbc, whilst resources for Yolanda have been estimated at 27 Bcfg. However, Cameroon has also brought an FLNG plant onstream; the Golar “Hilli Episeyo” vessel, only the second FLNG vessel in operation globally. It commenced FLNG production from the Perenco-operated Kribi gas fields in March 2018. Therefore, the Cameroonian Government may be keen to see gas from Yo Yo/Yolanda developed at Kribi, instead of at Punta Europa. Keppel (Singapore) converted the “Hilli Episeyo” vessel from a 1975 Moss LNG carrier, which had a 125,000 cu m storage capacity. It is the first such FLNG vessel conversion and took three years to complete. The conversion budget was US$ 1.2 billion. The gas resources earmarked to be tapped are around 500 Bcf (but with future upside), with production expected to reach 1.2 MMt/a. Gazprom has signed to take all the LNG product for an 8-year period. Cameroon had also studied the possibility of constructing an onshore 3.5 MMt/a LNG plant at Kribi (to be supplied with gas from the New Age operated Etinde fields), however, Engie (formerly GDF Suez) suspended the plans for the US$ 5 billion project in 2016, due to unfavourable market conditions. Whilst the Etinde fields are just 35km away from Punta Europa, regional politics means it is unlikely that gas from these fields will be developed via the MegaHub project.
The “Hilli Episeyo” vessel was seen as a forerunner to Ophir Energy’s Fortuna FLNG project, to be located on Block R, in the west of Equatorial Guinea’s maritime area and some 100km west of Bioko Island. Ophir currently operates Block R with 80% equity, GEPetrol holds the remaining 20%. However, after a Final Investment Decision is made on Fortuna, the Fortuna Joint Operating Company (JOC) will hold Ophir’s 80%. The JOC is comprised of Ophir (33.8%) and One LNG (66.2%). The parties signed a detailed Umbrella Agreement in April 2017, establishing the full legal and fiscal framework for the project. Following this, midstream contracts were awarded in May 2017 and upstream contracts in October 2017. In late August 2017, the principal commercial terms for a sales and purchase agreement for 50-100% of the offtake from the project were also agreed with Gunvor Group, and Gunvor was nominated the preferred LNG buyer (it was also rumoured to be in discussions with Sonagas regarding the financing of Sonagas’ potential acquisition of 30% of the project). The final stage required for the project before the Final Investment Decision was taken was for project financing, worth some US$ 1.2 billion, to be completed. Ophir was initially expecting to have completed this by end-2017 and was in discussions with Asian lenders, including the Industrial and Commercial Bank of China (ICBC). However, ICBC was keen that the projects planned LNG output was sold exclusively to CNOOC and that engineering, procurement and construction contracts went to Chinese-state companies. Talks are still ongoing with other Asian lenders; Western banks are said to be less keen on the project due to Equatorial Guinea’s opaque political situation.
The Government has now set a December 2018 deadline for Ophir to complete project financing for Fortuna. Ophir was granted a one-year extension to Block R in November 2017, with the licence now expiring in mid-December 2018. Oil Minister Gabriel Obiang Lima has stated that the Government has a clear idea as to which company would be granted the licence if Ophir is unable to continue with the development. It is possible that if Ophir is unable to complete the financing deals required that gas from Fortuna would then be utilized at the planned MegaHub project – possibly providing enough gas for the much-coveted second LNG train.
The final potential source of gas for future phases of the MegaHub project is from ExxonMobil’s Zafiro Field. The oil field was discovered in 1996 and brought onstream in 2003. It has produced over 1 billion barrels of oil to date (from an estimated ultimate recovery of ~1.2 billion barrels). Gas is currently flared; however, the Government has been keen to halt this. Given the maturity of this field, it seems unlikely that major new investments will be made here unless significant additional reserves are proven.
The Government is currently in discussions with new potential LNG buyers from Punta Europa; its existing 17-year agreement to sell LNG to BG (Shell) will expire in 2020. For various reasons, the BG deal is widely considered to be one of the most lucrative LNG supply deals ever signed, and the Government is keen to ensure it receives a far higher share of profits in future. Talks are progressing with CNOOC, Lukoil, Total, Vitol, Shell and a Lukoil/New Age JV. Supply deals will be offered for 3-5 years.
The Government is also in talks with a number of Africa countries regarding the supply of LNG via the LNG2Africa initiative, which aims to encourage the use of LNG in Africa, using Africa-sourced gas. A summary of the discussions held so far include:
- In early-April 2018, Togo signed a memorandum of understanding (MoU) with Equatorial Guinea to facilitate the trade of LNG between the two countries. Under the agreement, Togo will assess options for the import and regasification of LNG, and its use for power generation. A framework for Togo to import LNG produced in Equatorial Guinea is also provided.
- Burkina Faso also signed a MoU with Equatorial Guinea in September 2017 under which the two governments aim to negotiate an LNG sale and purchase agreement and a terminal use agreement. A technical study will also be commissioned for the construction of LNG regasification and storage facilities, and associated transportation infrastructure in Burkina Faso.
- Equatorial Guinea also signed a framework agreement for the export of LNG to Ghana in August 2017, which is in the market to import some 250-500 MMcfg/d; despite Ghana having indigenous gas production from the Jubilee Field and the Sankofa Field, the country has struggled to supply enough gas to satisfy its restricted demand. Ghana is also supplied with pipeline gas via the West Africa Gas Pipeline, however, supplies through this source are unreliable.
- Discussions have also taken place with Mali, Morocco, South Africa and Guinea, plus Angola where talks have now ended.
All these discussions should, of course, be viewed in light of the “Africa Unite” theme that Equatorial Guinea is pursuing, under the belief that if the oil producing economies of the continent can work together they will hold much greater sway on the global stage. To this effect, a number of E&P co-operation agreements with various countries have also been signed, including with Angola, Mozambique, Uganda and South Sudan. Equatorial Guinea became the 14th member of OPEC in May 2017; declaring its intentions to become a representative voice for smaller Africa producers. It has been pushing for more African countries to join the cartel. Whilst its oil production is declining, global LNG demand is rising, and a well-planned gas and LNG strategy could well result in the Equatorial Guinea’s increasing dominance in the Africa E&P sphere.