TOGY talks to Gabriel Mbaga Obiang Lima
In less than two decades Equatorial Guinea’s oil and gas industry has propelled the small nation from one of the poorest countries in Africa to its third-largest oil and gas producer. The country also has the highest GDP per capita on the continent. Delegate Minister of Mines, Energy and Industry, Gabriel Mbaga Obiang Lima, has been a driving force behind the modernisation of Equatorial Guinea’s resources. In 2011 he finalized agreements with a number of new companies.
THE OIL & GAS YEAR: Considering its rapid development, how would you describe Equatorial Guinea’s profile in the global energy market?
GABRIEL MBAGA OBIANG LIMA: We are looking at Malaysia and Singapore as examples. Malaysia is a big country with lots of resources, while Singapore, a smaller country, has relatively fewer resources, although it does have a very dedicated services industry. We could put these countries in parallel with Nigeria and Equatorial Guinea. We understand that our future is not solely in oil and gas, as our resources are limited. Equatorial Guinea’s future is in services.
Equatorial Guinea needs to invest heavily so that when the country’s resources start to decline, the appropriate infrastructure will already be in place. Hydrocarbons infrastructure, such as refineries, allows us to answer increasing demands for products more efficiently. In this context, we can consider Equatorial Guinea to be the Singapore of Africa, offering export services and products to neighbouring countries.
TOGY: How is the current decline in oil production in the country affecting the long-term outlook of Equatorial Guinea’s energy industry?
GMOL: The first phase of the oil and gas in Equatorial Guinea was extremely active, and the companies that came to work in the country received very favourable rates. When this phase began to come to an end, we started evaluating what our next policy would be. One thing we realised was that the country needed to improve some of the terms being offered by the national oil company and the state. We improved them, and in 2008-09 we had a bit of a slowdown in the awarding of blocks. In 2010 contracts were signed, after which companies began doing many evaluations. This evaluation process will end soon, meaning there will be more drilling in 2012 by companies including PetroSA, Nobel and Repsol as well as some Chinese companies and companies in the new blocks, such as Vanco Corisco.
From now until the end of 2011, we anticipate signing five additional blocks. There is information on some of them that will allow us to continue drilling and exploration.
TOGY: How has the country’s gas monetisation policy grown to dominate the future of Equatorial Guinea’s energy sustainability?
GMOL: The monetisation of natural gas is more complicated than oil. Oil is simply developed and exported, but with natural gas all the relevant parties need to be on the same page and do everything step by step. It requires more co-ordinated work and more convincing of the industry. At the same time, it is a project for which you need specialists, a strong ministry and engineers to design everything.
Gas monetisation is very important for us, primarily because we believe that there is more gas than oil in Equatorial Guinea. In the Gulf of Guinea, everybody has been looking for oil, so much so that people were perhaps ignoring gas structures. But if you do the research, you will realise that our gas reserves are actually bigger. We have one advantage in this, namely, that the infrastructure is already there. This means that anything we do in terms of the utilisation of gas is going to be cheaper than anywhere else.
TOGY: What infrastructure will be required to quickly capitalise on the country’s resources?
GMOL: The goal behind creating the 3G Consortium – a partnership between our government, GALP Energy and Union Fenosa – is to build infrastructure that can facilitate the upstream business. Then all that is needed is to make the discovery and connect to our system. This allows us to audit how the gas is going to be used and determine what price the gas will sell for. Contained within this monetisation is both the buying process and the net price. Depending on what we sell in the market, that’s going to be the price that we peg to the installation.
Gas monetisation is very important because even when all the oil is depleted, there will still be gas. Moreover, it is even possible to convert some oil production facilities into gas production facilities – it might not be economical in every case, but it is possible. It is important that the country has a good master plan.
TOGY: What needs to be done to resolve regional tensions in the country and make the investment in this infrastructure worthwhile?
GMOL: We are telling everyone what we are doing, but we are not obligating anyone. We can tell people that we will have this capacity and that if they want to come one day, the capacity is already there for them. However, we aren’t saying that we need an agreement for the project to be economical for us. We are saying that we would like to work together.
Gas projects are expensive, so the margins are small. As such, it will likely make a lot of economic sense for these companies to choose us, because those projects will otherwise be too expensive. For instance, Cameroon is considering building an LNG plant, but it will cost $5 billion. That’s good for Cameroon and it can most certainly do it, but it would be more economical and the country would recoup its investments faster if it built the LNG plant with us.
We’re also creating a special economic structure. When you make a discovery and capture the gas, you immediately know how it’s going to be processed and what your final market potential value or revenue is going to be from it. This is also open to neighbours – if a company discovers something in a far-flung part of Nigeria and realises what the cost of transporting it through Nigeria is going to be, the company might then come to us. Its job will then be to convince the country of the economic upside to doing things through Equatorial Guinea.
TOGY: Is the second planned LNG train going to become a reality in the near future?
GMOL: The initial memorandum of understanding (MOU) was signed in early 2011. The MOU is the first agreement signed between upstream and downstream operators to create a clear economic model. Now the goal is to conclude a contract from the MOU, which will be extremely important because we have Noble Energy currently preparing to supply gas. We still need the contract between the downstream and the upstream for the second train. We hope to have the contracts signed by the end of 2011, the final investment decision finalised by the end of 2012 and then the first production by 2016. The only thing that we are currently investigating is the size of the plant because depending on the final feed information we will know whether the plant will be the same size or smaller.
TOGY: Until now, the majority of Equatorial Guinea’s energy industry has been dominated by US companies. How is that changing?
GMOL: We have always given preference to companies that were already operating in some capacity in Equatorial Guinea, such as Marathon, ExxonMobil and Nobel Energy. Whenever they want to expand operations here, we tell them not to go through the normal process, but instead to talk to the ministry, since these companies have already proven themselves.
We have always felt that US oil firms are some of the best in the world. However, we do not turn away anyone who is interested in entering the country. Until now, the US has had the most interest but that’s beginning to change. We have firms from Russia, Nigeria, China, Spain and Australia all taking a look at our market.
TOGY: You are now moving from competitive licensing rounds into direct negotiation. What has brought upon this change of policy?
GMOL: We have had a rapid growth and development in the country. This increases the pressure to generate much greater revenues. The projects are getting bigger and bigger. We therefore needed a policy in which the interest lies in the working programme more than in the signature bonus. We attract companies with track records of aggressive working programmes, not only those with a lot of money. While money is available around the world, not everyone has the expertise. Companies such as Hess and Marathon Oil are the type of companies with high rates of success we want to attract.
