Updated: New companies to start lifting LNG from Equatorial Guinea

Author: Daniel Stemler

2021/03/11

Updated: This story has been updated to include details of Chevron lifting its first cargo:

MADRID (ICIS)--The start of feedgas flows from Equatorial Guinea’s offshore Alen gas project into the country’s LNG plant will likely see new companies start to lift cargoes from the West African country.

The Alen Gas Monetisation project produced first gas in February, said operator Noble Energy, recently acquired by US energy major Chevron.

The project has been a key development to offset declining output from the Alba field, north-west of Bioko Island, where Equatorial Guinea’s 3.7mtpa Punta Europa LNG export plant is located.

Production from the plant has been falling since 2017, when it produced 3.8m tonnes of LNG, to around 2.5m tonnes last year, according to LNG Edge data, in line with dwindling output from the Alba field.

The Alen project is now expected to end the dominance of LNG portfolio company Shell, who has been the sole offtaker of LNG cargoes from the plant with its long-term contract for 3.4mtpa.

“Under the existing merchant structure for the Equatorial LNG plant, Shell has had a monopoly on the entire LNG volumes lifted from the facility via its acquisition of BG Group back in 2015 which included its merchant LNG contract with the West African LNG plant,” said Olumide Ajayi, LNG analyst at ICIS.

The start-up of the new Alen gas project last month, which is based on a new tolling structure, brings an end to that monopoly.

“The tolling structure allows the current shareholders of the Alen field to directly lift the LNG produced in proportion to their percentage ownership on a free-on-board basis,” said Ajayi.

The LNG plant is owned by US-based Marathon Oil, state-owned Sonagas and Japanese trading houses Mitsui and Marubeni.

The Alen field is shared between Block O (95%) and Block I (5%) offshore Equatorial Guinea.

Noble Energy has a 45% working interest in the project (45% Block O and 38% Block I).

Switzerland-based commodity trading house Glencore has a 25% and 23.75% interest in Block O and Block I, respectively.

Other stakeholders include state-owned GEPetrol, Nigerian producer Atlas Oranto, and commodity trader Gunvor.

ICIS understands that Glencore has no intention of selling its share of feedgas to a third party, such as Shell, which suggests that the company is planning to start lifting cargoes from Punta Europa.

“Obviously Noble has a foot in both fields so perhaps they will sell some of Alen’s [gas] to Shell...but they can’t sell others’ equity gas,” a source close to the matter told ICIS.

Chevron lifted the first cargo from its feedgas share from the Alen project on 10 March, a company spokesperson told ICIS.

The cargo was lifted by the 173,000cbm Flex Artemis, according to LNG.
The vessel is now heading southwest in the Atlantic Ocean.

Pricing change

With the start-up of gas flows from the Alen gas project, Equatorial Guinea could potentially see larger revenues from LNG sales.

Shell’s existing contract, which runs until 2024, is indexed to the US Henry Hub price.

When BG Group originally signed the contract in 2004 with the stakeholders of the LNG plant and the Alba field, the US was still a gas importer and Henry Hub prices were well above $10.00/MMBtu.

But with the US turning into an exporter in the last few years, Henry Hub prices have plunged and are now trading below $3.00/MMBtu.

As a result, sales from the Alen project are highly unlikely to be indexed to the Henry Hub.