Gas hub in Equatorial Guinea

[Matthias Offodile]

Sonagas to pursue plan in Equatorial Guinea

By Matthew Green in Abuja



Published: February 27 2009 02:48 | Last updated: February 27 2009 02:48

Sonagas, Equatorial Guinea’s state gas company, says it will push ahead with plans to partner with Eon Ruhrgas, the German utility, to create a West African gas hub, as it dismissed concerns that the project will struggle to source enough supply.

The volcanic island wants to transform itself into a centre for gathering gas from neighbouring Nigeria and Cameroon as well as from its own reserves to boost its exports of liquefied natural gas.

Serapio Sima Ntutumu, deputy director-general of Sonagas, said he hoped to reach a final investment decision on the scheme by June with a consortium comprised of Sonagas, Eon, Union Fenosa of Spain and Portugal’s Galp Energia.

“We want to be fast,” Mr Ntutumu told the Financial Times on the sidelines of an oil and gas conference in Abuja, Nigeria’s capital. “It’s a huge project. Unemployment will disappear, the government will have more money.”

Eon, Europe’s leading gas company, signed a memorandum of understanding setting out its commitment to developing the scheme and building a second LNG export facility in Equatorial Guinea last month as part of a wider strategy of diversifying its sources of gas.

European governments consider West Africa as a potential route to reducing their dependence on Russia, which supplies a quarter of gas consumed in the EU.

Mr Ntutumu declined to give an estimate for the cost of the project, which will require huge investment in pipelines and processing facilities at a time when falling oil prices are forcing energy companies to review many projects.

Equatorial Guinea is hoping to source gas from new discoveries in its waters and from gas currently flared as waste by ExxonMobil, the US major, from its Zafiro deepwater oilfield. The government will have to convince its partners that it can persuade neighbouring states to make up the difference needed to make the project viable.

Past attempts to broker deals to pipe gas to Equatorial Guinea have delivered scant results. Nigeria has ambitious plans to harness a greater share of its vast gas reserves for domestic use as well as feed a growing export market. Cameroon would also need substantial incentives to participate.

Members of the consortium, who have pledged to help develop a “master plan” to commercialise Equatorial’s Guinea’s gas, will also have to weigh the risks of stepping into one of Africa’s fastest-growing but most volatile energy frontiers.

Huge offshore oil discoveries have boosted Equatorial Guinea’s oil production from almost nothing a decade ago to about 380,000 b/d, ranking it behind only Nigeria and Angola among sub-Saharan African producers.

But the rapid expansion has been accompanied by tensions between the government and companies. Senior officials are unhappy with the terms of a contract they have with the UK’s BG Group, sole purchaser of the country’s existing 3.4m tonnes of LNG output. The government has also publicly criticised ExxonMobil for flaring gas.


Copyright The Financial Times Limited 2009

[Matthias Offodile]

Eon leads Europe dash for West African gas

By Matthew Green in Malabo

Published: March 27 2009 16:28 | Last updated: March 27 2009 16:28

Eon, the German gas giant, is leading a foray by European energy companies into Equatorial Guinea, challenging established US rivals in the race to secure sources of supply from West Africa.

Europeans largely stood aside as ExxonMobil and other US companies spent the past decade working with one of Africa’s most authoritarian governments to transform the country into a major exporter of oil and liquefied natural gas.

Fears over declining output from EU gas fields and the risks of overdependence on Russian supplies have, however, pushed European companies to take on dominant US players in the energy-rich Gulf of Guinea.

Eon and Union Fenosa of Spain appear to have leapfrogged US competitors by securing a deal to help Equatorial Guinea develop a masterplan that could shape the development of its gas reserves for decades to come.

The companies have also agreed to work with Sonagas, the state gas company, to build a network of pipelines and processing facilities the government hopes will transform the tiny island of Bioko into a gas export hub for West Africa.

Equatorial Guinea mapIn return, the companies seek long-term gas supplies from the former Spanish colony, where Teodoro Obiang Nguema Mbasogo, the president, seized power in a coup 30 years ago.

“To balance our supply portfolio in the long run we need to integrate new supply sources,” Dietrich Gerstein, Eon’s chief executive officer for LNG, this week told a conference in Malabo, Equatorial Guinea’s capital.

Had conference delegates been in Malabo on February 17, they could have watched from their hotel as gunmen in speed boats attacked the presidential palace before fleeing, pursued by an army helicopter gunship.

The raid, by Nigerian militants, was a reminder of the potential for instability in sub-Saharan Africa’s third biggest oil exporter, which last year jailed Simon Mann, a former UK special forces officer, for his part in a failed coup plot in 2004.

Gabriel Obiang Lima, the vice-minister of mines, industry and energy, who is also one of the president’s sons, told the conference that European companies would guarantee a market for the country’s gas. “The most difficult thing is to find the consumer,” he said.

Oil Production chartHe said criticism of Equatorial Guinea’s human rights record, including a damning UN report in November, was unjustified. “There are individuals who are ensuring that the image of the country is negative all the time,” he added.

Eon will hold a 25 per cent stake in a planned “3G” consortium in which Union Fenosa and Galp Energia will each hold 5 per cent. Sonagas will own 50 per cent. The government will retain the remaining 15 per cent, with the option of selling it.

The government says the consortium may consider building an LNG export terminal alongside its sole existing plant, built by Houston-based Marathon Oil , once it has assessed the scale of gas reserves. Marathon’s terminal has a nameplate capacity of 3.7m tonnes a year.

Analysts say there are still question marks over the size of the country’s resources and whether it will be able to source enough gas from Nigeria and Cameroon to make its plans viable.

However the prospect of European companies leading the next phase of Equatorial Guinea’s gas industry development has already raised hackles among established US companies.

Executives at Marathon, which shipped the country’s first LNG exports in May 2007, believe they are best placed to lead any expansion. ExxonMobil might also find itself being obliged to sell the gas it flares from its Zafiro deepwater field into the planned gas gathering system under a pricing framework devised by the consortium.