Equatorial Guinea diversifies to LNG

 

Equatorial Guinea was again one of SSA's largest exporters of crude oil in 2009. But hopes for the future rest just as equally on natural gas, the shrewdly marketed product whose earnings are much easier to predict

RECENTLY ONE OF the fastest growing economies in the world, Equatorial Guinea has been successfully shifting its emphasis from the further development of offshore crude oil resources (principally from the Zafiro Field close by Bioko Island, found and operated by ExonMobil) to high-tech liquefied natural gas. Apart from the size of reserves – estimated at 1.1bn bbl and 36.8bn m3 respectively - the reasoning is straightforward. Crude oil remains heavily dependent on the vagaries of a managed spot market which, with crude changing hands at nearly $75/bbl late September, is currently doing rather well, even though this OPEC-surrounded country is not signed up to the cartel's widely criticised production-capping arrangements. But OPEC's 'fair return' price is not guaranteed to last. LNG, on the other hand, can if properly marketed be sold on long-term contract terms, as highly successful and trailblazing Qatar is showing so spectacularly despite the gas market turnaround in the USA right now. Punta Europa-based operator EG-LNG with the assistance of its partners Marathon (USA), Sonagas (domestic) and various Japanese trading houses has tied up lucrative supply deals with several major customers in the Far East, allowing it to export the equivalent of 4.7bn m3 in 2009, and rising. Two years before the debut plant offshore had not even started its operations.

Cross-border co-operation with both Nigeria and Cameroon plays a significant role in the development of this capital-intensive business, and Russia's giant Gazprom is involved, too.

However, because of the weak oil market Equatorial Guinea's economy took a knock in both 2008 and early 2009, the year in which President Nguema Mbasogo was re-elected for a further seven-year term. But by the time of that victory in November the economy was already firmly on the rebound anyway, and the African Development Bank's African Economic Outlook 2010 has just forecast that the current account surplus – almost entirely generated by energy products - will nearly double to 14.4 per cent of GDP this year, and reach 17.7 per cent in 2011. The existence of the Zafiro resource was not even known about before 1992, when it was soft commodities like top-quality cocoa and a lot of unprocessed timber that this central African country was principally reliant on.

But all is not rosy in this oft-overlooked homeland of just half a million people which lies immediately south of Cameroon yet whose most prosperous region by far, the offshore island of Bioko (formerly Fernando Po) on which the capital Malabo is located, lies inconveniently and remotely to the north (hence the interest of energy giant Nigeria in EG's growth). And this despite signing up to the international Extractive Industries Transparency Initiative in 2005, long before the fickle oil market crashed.

In particular Equatorial Guinea is trailing neighbouring states in terms of several of the Millennium Development Goals, especially those which are focussed on human development. Concessional funding which would have seen that more attention is given to these is no longer available because of the current account surplus, and the IMF's Enhanced Structural Adjustment Facility ran out more than a decade ago. In particular it is infrastructure that is needed to better the situation – especially more roads, safer water supplies and 24/7 power – nearly all creaking at best. This, coupled with the cripplingly limited size of the domestic market for just about everything and the difficulty of reaching the business hot spots discourages further international investment in a country which would otherwise surely be regarded as a 'regional growth engine' of the first order. This status should remain for a couple of decades at least, as long as the oil and gas keep flowing. Power generation apart, very little demand for the latter exists at home. However Fang- and Spanish-speaking Equatorial Guinea remains an example of a difficult country in which to do business, too.

 

Alain Charles Publishing, University House, 11-13 Lower Grosvenor Place, London, SW1W 0EX, UK
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