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INTERVIEW-Equatorial Guinea says may seek revised LNG deal with BG

Joe Bavier
Thursday, 7 Nov 2013 | 8:07 AM ET

* Equatorial Guinea pushing new gas supply deals across Africa

* BG currently selling Equatorial Guinea's LNG in Asia

* Plans for petrochemicals complex and floating LNG on track

* New licensing round for four blocks to open in February

ABIDJAN, Nov 7 (Reuters) - Equatorial Guinea may seek to revise some aspects of a controversial deal with BG Group as it moves to export more gas to Africa, its oil minister said.

BG signed an agreement with the tiny African nation in 2004 to purchase 3.4 million tonnes of liquefied natural gas (LNG) each year until 2024 from Equatorial Guinea LNG (EG LNG), a joint venture led by Houston-based Marathon Oil.

Under the deal, BG buys at a fixed discount to the U.S. benchmark futures price at Henry Hub in Louisiana, industry sources say.

The boom in U.S. shale gas has since slashed prices there to amongst the lowest in the world, allowing BG to sell at five times the price in Asia while keeping almost all of the profits, trading, legal and industry sources say.

"For us, we think that the price that we initially had was a very good one, because it allowed us to recover the investment quicker," Gabriel Obiang Lima, Equatorial Guinea's oil minister, told Reuters in an interview.

"But at the same time we really do need to study if we do want to change those prices. We really need to hear, especially from Marathon, to take a decision the beginning of next year."

Obiang said Equatorial Guinea was looking into the possibility of partnering with energy-needy African nations including South Africa, Morocco, Ivory Coast and Ghana to supply them with LNG.

He said potential deals could see Malabo invest in regasification terminals and power plants across the continent in order to share in the profits from the sale of electricity produced using its gas.

Equatorial Guinea, which pumps around 300,000 barrels per day of oil and other liquids according to the U.S. Energy Information Administration, on Tuesday signed a protocol to study the potential for such a partnership in Ivory Coast and a similar agreement has already been penned with Ghana.

The government expects to make a broader announcement of its regional cooperation strategy next year, though no date has been set yet, Obiang said.

"This is something we are working with British Gas on," the minister, son of President Teodor Obiang Nguema, said, using the old name for BG Group.

"So probably by the time of the announcement that we have coming up next year, perhaps, yes, we will be in a position to sit down with British Gas and reconsider some of the situation."

DEVELOPMENT AT HOME

Obiang said Equatorial Guinea will open a new licensing round for four blocks in the Rio Muni area where 2D and 3D seismic imaging have already been carried out. Another four blocks will be made available in the summer, he added.

"In February in Cape Town we are going to announce it...And our aim is to before the end of the summer be able to sign," Obiang said.

The country is pushing ahead with plans to build a large petrochemical complex and floating LNG unit. Blocks O and I, operated by Noble Energy, will be used to supply the petrochemical plant focused on export, primarily to Nigeria.

Gas from these blocks was initially considered to feed a proposed expansion of the existing liquefaction plant but the low prices paid by BG Group may have discouraged Noble, according to a report by consultancy Poten obtained by Reuters.

The Marathon-operated EG LNG project pays just $0.25 per million British thermal units (mmBtu) for gas, Poten said.

BG Group buys from EG LNG at a 10-15 percent discount to the U.S. gas price, currently $3.50/mmBtu, and sells it to Asia for around $17.50/mmBtu.

BG Group privately agreed in 2009 it would remit 12.5 percent of profits from the Asian sales to the government. This is low compared with international standards, where LNG producers typically see a 50:50 profit split.

Plans to expand the LNG export plant look to have been put on hold given that gas from Blocks O and I is being sold as feedstock for the planned petrochemical complex.

"We're talking about January as the time we will announce it. We plan by the end of the year to have the gas supply agreement with Noble," Obiang said.

The government had given a green light to Britain's Ophir Energy, which controls block R, and three other partners to build Africa's first floating LNG unit, he said.

"I cannot go into detail about who is involved. But the answer is, yes. We are very keen to go on the fast track with floating LNG," he said, adding that the project was slated to come online in 2017. He did not name the other partners.

Floating LNG is a technical solution to unlocking stranded gas reserves far offshore, such as Ophir's R Block. Ophir was the biggest winner of Gabon's latest oil and gas licensing round announced last week, winning four blocks.

(Additional reporting by Oleg Vukmanovic in London; Editing by Emma Farge and William Hardy)

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