Gabon developing more hydropower and natural gas resources

In a global environment of low oil prices, the Emerging Gabon Strategic Plan (Plan Stratégique Gabon Emergent, PSGE) has sought to diversify the economy away from hydrocarbons since 2010. As such, over recent years the Gabonese government has increased development of the hydropower sector, as well as expanding the country’s large natural gas supplies – with new offshore deposit discoveries set to increase future output.

However, the country remains oil-dependent. Efforts have been made to boost other sectors such as agriculture and tourism, but oil still accounted for around 20% of GDP, 40% of budget revenues and 70% of exports in 2015, according to World Bank data. As a result, the current low level of global oil prices have had a significant impact on Gabon’s headline performance, as well as on upstream investment.

The government has reduced capital spending due to decreased revenues, while oil and gas companies are curtailing operating and development expenditures. However, with 2bn barrels of proven oil reserves, according to BP’s “Statistical Review of World Energy June 2016”, the country’s medium- to long-term outlook is promising.

Production

According to figures from the Organisation of Petroleum Exporting Countries (OPEC), in 2015 Gabon produced about 219,000 barrels of crude per day (bpd), down from a peak of 370,000 bpd in 1997. France’s Total Gabon, Anglo-Dutch firm Shell Gabon, and Anglo-French Perenco Gabon are the three main upstream producers in the country.

Total Gabon was the first operator in Gabon and has been operating since 1928. With roughly 30 producing fields, Total Gabon has the largest portfolio of assets among the three operators. The firm also had an exploration domain of 1774 sq km as of 2015, of which 664 sq km are under production-sharing agreements. According to data from Total Gabon, in 2015 the company produced around 25% of the country’s total oil output, equal to 20.9m barrels per year, or approximately 57,200 bpd.

Shell entered the country in 1960 and began production in 1967. Shell Gabon owns and operates four onshore blocks, primarily located in the south – Gamba/Ivinga, Rabi, Toucan and Koula. It also has exploration licences for two offshore blocks. In 2015 the company reportedly produced roughly 22% of the country’s total output.

Perenco began production operations in Gabon in 1992 after the firm procured fields offshore from Port-Gentil. The company currently holds interests in 29 onshore and offshore licences. In addition to producing around 31% of total domestic oil output, Perenco plays a large role in Gabon’s gas market, producing about 50m cu feet of natural gas in 2015.

Other foreign operators holding interests in Gabonese producing fields – namely China’s Addax Petroleum, UK-headquartered Tullow Oil, and France’s Maurel & Prom – were responsible for roughly 22.5% of Gabon’s total oil production in 2015. “In an environment where the barrel price hovers around $50, our main priority is in optimising production. Like most operators, our concern is to ensure the development of our ongoing projects, and reduce expenditures to the bare essentials, in hopes of preserving treasury levels,” Christophe Blanc, general manager of Maurel & Prom Gabon, told OBG.

Exports & OPEC Reintegration 

Gabon is predominantly an oil-exporting nation; out of the country’s total production, only about 10% remains for its internal market. Gabon therefore exported approximately 72m barrels of oil in 2015, retaining about 8m barrels for domestic uses.

OPEC officially approved Gabon’s request to rejoin the group in June 2016 after more than 20 years out of the organisation. Gabon had joined OPEC in 1975 but left in 1995 over the organisation’s refusal to grant the country’s request for reduced annual contributions in line with its small and plateauing production. Gabon’s re-admission to the organisation was effective from July 2016.

“We believe we can be an active and engaged partner in OPEC’s activities, as the organisation looks to meet both challenges and opportunities in the years ahead,” Etienne Dieudonné Ngoubou, Gabon’s minister of petrol and hydrocarbons, said in a June 2016 press release.

Onshore Activities

Gabon first became an oil producing country on the back of large onshore discoveries between the late 1950s and the 1980s. The Rabi Kounga oilfield is one of the country’s largest onshore fields, located in the province of Ogooué-Maritime. Discovered in 1985 with total reserves of around 440m barrels, it is being developed by Shell Gabon – which owns a number of other smaller onshore fields. Other onshore field licence holders include Total Gabon (one onshore field), Perenco (one onshore field), the US’s VAALCO (one onshore field) and Addax.

When onshore production began to plateau and decline due to the advanced age of many of these fields – particularly the Rabi Kounga oilfield – the government started encouraging further offshore exploration and production. Despite challenges brought on by forest, national parks and environmental constraints, the onshore sector still arguably has some years ahead of it. “The onshore sector still has something to offer,” Charles Tchen, CEO of Independent Petroleum Consultants, told OBG. “However, onshore seismic is expensive and you must pay the price to be successful,” he added.

Offshore

In 2008 Total Gabon announced a five-year redevelopment plan for its offshore Anguille field, located about 20 km from Port-Gentil in depths of 30 metres. Anguille was among the first fields discovered, in 1962. After 40 years of production, seismic studies were conducted in 2002 to see if it was possible to curb the field’s natural decline in production. Construction work began in 2010 over three phases to drill 41 new wells (30 production wells and 11 injection wells) at a cost of $2bn (€1.8bn). As of 2016 three wells remained to be drilled. Total Gabon expects to increase the oil recovery rate from 13% to 23%.

Recent Exploration

In 2014 the state awarded nine exploration permits to seven international oil and gas firms during the 10th deepwater licensing round, which opened in 2013. UK-based juniors Impact Oil and Gas and Ophir Energy acquired 100% interests in three blocks and two blocks, respectively, while 100% interests in one block each were secured by Malaysia’s Petronas, US-based Marathon Oil, Spain’s Repsol and a joint venture of the US’s Noble Energy with Australia’s Woodside Petroleum.

The government is hoping that exploration in deep offshore blocks will reveal some discoveries and boost Gabon’s declining production in the near future. Such hopes have been boosted by recent major discoveries in Angola and Equatorial Guinea, as well as a series of gas and condensate deposit discoveries by Shell, Total and Italy’s Eni in Gabon’s pre-salt formations during offshore exploration. Following the first discovery in the deepwater portion by Total in 2013, Shell and Eni made their own discoveries in 2014. For that reason, the government has been pushing the newly awarded operators to fulfil their contractual obligations. Indeed, as part of their agreements with the government, the new permit holders must subscribe to the multi-client 3D seismic survey – covering 25,000 sq km – conducted by the French oilfield services provider CGG.

Licensing Round

Gabon’s 11th licensing round was announced in October 2015 by Ngoubou. Five blocks were put on offer, with an initial closing date of March 31, 2016. The bidding round was extended twice, to April then May 2016, on account of low interest. As of October 2016 the results of the round were still pending. The blocks open for bidding, however, are attractive, according to Tchen. “These are very good blocks, the only reason they were not marketed during the 10th bidding round is because the government withdrew them,” he told OBG. “However, the major issue of the 11th bid round is the new Hydrocarbons Law, which is not attractive for the Industry,” Tchen added.

The five blocks on offer – E12, E14, F12, F13 and G14 – are all located in the country’s pre-salt prospect area, which has been generating quite some interest in previous years. Indeed, there is hope that Gabon’s pre-salt area holds similar attributes to Brazil’s famous pre-salt basin discovered between 2007 and 2008, and Angola’s Kwanza basin – both known for their sizeable reserves (see analysis).

Natural Gas

While oil has traditionally been the driver of the hydrocarbons sector in the country, natural gas has in recent years become more prominent, with a spate of new discoveries, and the development of fertiliser and petrochemical plants. Since 2013 new offshore discoveries by Total, Shell and Eni at three offshore blocks have turned up mostly natural gas. In 2014 Shell announced it made a substantial discovery of natural gas in its Leopard-1 exploration well. With proven reserves of about 28.3bn cu metres, primarily in associated deposits, according to 2014 data from the International Energy Agency, Gabon has the potential to become a major gas producer. Production costs for those deposits are likely to be steep given the technical complexity of extracting at depths of 1500-2000 metres, which in turn may make it difficult for Gabon’s gas to be competitive in export markets.

However, with internal demand rising steadily and a significant expansion planned for petrochemical and fertiliser activities, production in the near future would be beneficial for the country’s internal market. Two fertiliser plant projects – one being developed by a public-private partnership between Singapore’s Olam International and the government, the other a joint venture between Morocco’s OCP and state-owned Société Equatoriale des Mines – are in the pipeline (see Industry chapter), which would provide two large offtakers, with an estimated demand of up to 900m cu metres per year.

Power Surge

The country is also seeing steadily rising electricity consumption, which will also expand demand for gas. Gas already forms a component of Gabon’s electricity supply. In 2007 the country’s partially privatised national water and electricity supplier, Société d’Energie et d’Eau du Gabon (SEEG), signed an agreement with Perenco to build a pipeline between Port-Gentil and Libreville to supply gas to the Owendo thermal and gas power plant. The pipeline became operational in 2009 with a maximum capacity of 36m cu feet per day.

Regulatory Framework

Seeking to safeguard the interests of the state in the oil industry, the Gabonese government established the Gabon Oil Company (GOC) in 2011. GOC’s functions are many and varied. According to the state decree that established it, its key tasks are: holding, managing and executing a range of petroleum activities on behalf of the state; managing state participation in oil and gas fields; overseeing firms that hold conventions of establishment and production-sharing agreements; monitoring and operating (alone or in association, partnership or joint venture) hydrocarbons deposits and any related or associated substances; and, in general, performing all financial transactions related directly or indirectly to the hydrocarbons industry under Gabonese or foreign law.

Gabon’s most recent Hydrocarbons Law, which came into force in 2014 allows for production-sharing agreements, with the state’s share to be at least 50% in deep offshore, rising to 55% in onshore and shallow waters. GOC may also purchase up to an additional 15% in a production-sharing agreement at market rates and may purchase a participating interest of 20% in the equity of any firm applying for or holding an exploitation title. The law also applies new environmental protection standards, such as stricter limits on the flaring of gas.

The hydrocarbons law also introduces new fiscal burdens for oil and gas companies operating in the country. Withholding taxes are applied at the source at a rate of 20%, up from 10% previously, and operators are subject to a 35% corporate tax. “There are some good and some bad elements to the hydrocarbons law,” Erik Watremez, a partner at EY, told OBG. “The good side is that it tackles environmental issues and sustainable development better than in the previous law, as well as institutionalising local content development. The problem is that it is not flexible enough, especially in times like this. The operator and its joint venture are taking all the risks at the beginning, there is no safety net,” he added.

Oilfield Services

As is the case across the world, oilfield services companies – primarily located in Port-Gentil – are seeing a slowdown in activity and revenues due to the drop in oil prices. Since the crisis, oilfield services companies have seen pushback from producers to provide discounts; in some cases, by as much as 30% to 50% on the market rate.

The slowdown has resulted in operators having to freeze new hires, reassign expatriate management, and – with the support of the government – put local employees on temporary leave. Temporary leave is the result of a compromise between the government and the oilfield services companies, enabling companies to maintain their workforce rather than laying them off, but to pay them a certain percentage of their existing salary for the next few months until activities start up again in Port-Gentil.

The prospects for 2017, however, appear much brighter for services companies. “We are hoping for activities to resume by the end of the first quarter of 2017,” Hichem Mahdi, director general of Schlumberger Gabon, told OBG. “If the prices go up again, many operators will want to come back, and some new ones will want to set up shop,” he added.

Downstream Capacity

Gabon’s sole oil refinery – which first opened in 1967 – is located in Port-Gentil and is operated by Société Gabonaise de Raffinage (SOGARA). In 1964 SOGARA was created by a consortium of African countries, including Chad, the Central African Republic, the Republic of Congo and Cameroon. After the partner countries withdrew in 1973 in order to develop their own national refineries, SOGARA became a joint venture between the Gabonese state, Total, Eni and local retail company PetroGabon.

In 2015 the SOGARA refinery processed 900,000 tonnes of crude oil, amounting to an estimated 700,000 tonnes of processed petroleum products, according to figures from Total Marketing.

Marketing

Gabon’s fuel market is split between four operators. Total Marketing Gabon held 35% of the market in 2015, while PetroGabon held 30%, with OiLibya and South African retail company Engen sharing the remainder of the market.

A communal retail depot is located in Libreville, with a capacity of 17,000-18,000 tonnes of diesel fuel, around 7000 tonnes of petrol and 400, 000-800,000 tonnes of liquefied petroleum gas. On average, the depot is stocked up every four days. “Currently, the storage infrastructures are functional and able to keep up with demand, but only because there has been an overall decrease in fuel-demanding activities,” Félix Boni, director general of Total Marketing Gabon, told OBG.

The primary challenge for fuel retailers is the fact that the government sets the price and the distribution margin. “The distribution margin has not been revised since 2006, despite the continued rising inflation,” Boni told OBG. “Fixed rates continue to increase while prices remain the same.” In part, this due to the government’s strict control of the fuel marketing sector. For many years, the state has been implementing a fuel subsidy, thus controlling the prices at service stations. Based on IMF data, this subsidy cost the government some CFA200bn (€300m) in 2009 – 1.6% of the government’s funds. By 2013 the subsidy cost the government CFA220bn (€330m) – 8.4% of the state’s funds.

After partially lifting the subsidy in 2014, the cost fell to CFA125bn (€187.5m), yet absorbed 5% of state funds. The subsidy was completely lifted for petrol and diesel in February 2016 and resulted in relatively little impact on the consumer in the context of low oil prices. “The increased cost of oil subsidies in recent years has had the unintended result of benefiting large industrial consumers, as opposed to lower-income households,” Arnauld Engandji, CEO of GOC, told OBG. “It is hoped that moving from a system of subsidies to specific and targeted measures, such as the use of oil vouchers or the improvement of the public transportation network, will better reduce the impact of high energy costs for individuals and small business owners.”

Electricity

While Gabon’s small population and natural resources leave it well-placed to accommodate power demand, swelling household consumption and steady growth from industrial consumers have increased demand by 15-20% on a yearly basis in Libreville alone. Libreville’s grid – one of five isolated distribution areas in the country – is struggling to keep up, and load-shedding still occurs in certain neighbourhoods. The lack of a national transmission grid has also contributed to a tight supply-demand margin in a large number of the country’s urban areas. “Gabon suffers from a lack of interconnection,” Erwan Rouxel, head of finance and contracts at SEEG, told OBG. “As soon as the towns and cities are interconnected on the grid, the electricity network will be stronger and more stable,” he added.

Current peak demand in Libreville stands at around 255 MW – just below the 270 MW of the city’s dedicated facilities. According to SEEG projections, peak hour electricity demand in Libreville will exceed the grid’s current capacity by 2019 if no increase in electrical production capacity is implemented.

Power Generation

Gabon’s power generation derives primarily from thermal plants, accounting for roughly 60% of overall output, and hydropower, accounting for the remainder. Gabon’s current electricity production capacity stands at 725 MW, of which 443 MW of installed capacity is owned and operated by SEEG and the remaining 282 MW belonging to the state-owned Société de Patrimoine du Service Public de l’Eau Potable, de l’ Energie Electrique et de l’Assainissement (SDP).

As of 2016 there are four thermal plants in the country: two in Libreville, including a 128-MW plant in Owendo run by SEEG and a 70-MW plant in Alé nakiri run by the SDP; and two in Port-Gentil, including a 48-MW plant operated by SEEG and a 52-MW plant run by the SDP, which will be connected to the grid shortly. In addition to the SDP-owned 160-MW Grand Poubara hydropower plant that powers Franceville, Gabon has three major hydropower plants operated by SEEG. The Kinguélé plant has a capacity of 59 MW and is located roughly 200 km east of Libreville along the Mbei river, supplying Libreville via a 224-KV line. The second hydropower plant, Tchimbélé, is located along the same river and has a capacity of about 69 MW, while the third plant, Petit Poubara, near Franceville, has capacity of 38 MW. The Grand Poubara and Alénakiri stations belonging to the SDP are operated under concession by China’s Sinohydro and Israel-based Telemenia.

Upgrades

Under the PSGE, the government aims to increase power generation capacity to 1200 MW by 2025 – including renovating existing hydro facilities to allow them to produce 500 MW – and provide universal electricity access by 2020. Such timelines were revised by a meeting of the Council of Ministers in 2014, fixing the target of providing electricity to 85% of rural areas by 2025 and achieving universal access to electricity by 2035. However, some of these larger investments are pending – at least as they pertain to SEEG’s facilities – as the company’s 20-year concession is up in July 2017 and the government has not yet confirmed whether the concession will be renewed. “There is an issue with bringing the electricity on to the grid,” Alain Herth, director-general of the Regulatory Agency for the Drinking Water and Electricity Sectors, told OBG. “Furthermore, there is still no buy-back contract between the concessionaire and the state, as the price is higher than what SEEG expected,” he added.

Incentivising new private participation may also be challenging, due both to pricing issues and the lack of a large-scale national transmission grid. However, there are new facilities in the works. With annual rainfall averaging between 2500-4000 mm in Libreville, the scope for expanded hydro generation is clear. In February 2016 SEEG launched the Kinguélé Aval hydropower plant project, a new 60-MW plant located further upstream from the existing Kinguélé plant along the Mbei river. Construction is expected to take four years and cost CFA100bn (€150m), financed in part by Paris-based Meridiam.

Three other hydropower projects are pending. SEEG is currently conducting a feasibility study to build the 110-MW Ngoulmendjim hydropower plant, while the China Gezhouba Group is tasked with the construction of the 36-MW Fé 2 hydropower plant along the Okano River and the 84-MW Chutes de l’Impératrice Eugénie on the Ngounié River. “As the national grid has developed and expanded, Gabon’s electricity generation has gone towards relying on thermal energy over hydropower, in a 60-40% split,” Thomas Fer, technical director of SEEG, told OBG. “The idea is to reverse this trend and return to 60-70% hydropower contribution,” he added.

SEEG is also planning to build a national interconnection network to help improve transmission between the country’s far-flung urban areas. One of the first priorities is the implementation of a transmission link between Port-Gentil and Libreville. Port-Gentil’s current capacity of 48 MW will soon double when the Alénakiri thermal plant is connected to the local grid in late 2016. Given that the city’s demand is only around 52 MW during peak hours, the grid will have ample excess supply.

Renewables

While solar and wind facilities are limited – in part because conditions, such as average wind speeds of 10 km per hour, are not particularly favourable – the country is seeing increased interest in renewable activity. SIAT, a Belgian agro-industrial company with extensive rubber and palm oil activities, is planning on developing Gabon’s first biomass power plant, creating energy from palm oil residue. Singaporean agricultural conglomerate Olam is also exploring similar initiatives (see Industry chapter).

Outlook

Despite the oil crisis, Gabon remains very much dependent on oil revenues. The government is counting on the 11th licensing round to generate renewed interest in the industry and boost declining national production. The state is equally counting on previous round awardees, and is actively reminding them of their obligations vis-à-vis the production-sharing agreements, despite unwillingness to take on any major project until the crisis passes.

In the context of steadily increasing electricity demand, SEEG and the Gabonese government are working on new investment plans to meet targets set by the PGSE, which means there will be a significant increase in capital spending on transmission lines and grid interconnections, along with new generating facilities over the short- to medium-term.

Perhaps the biggest upcoming change expected to alter the energy sector is the growth of gas production, with new offshore deposits paving the way for output to increase. While the complexity of the deposits may limit export competitiveness, the country’s steadily rising need for power and the launch of new petrochemical and fertiliser plants should ensure ample demand for deepwater gas.

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The Report: Gabon 2016

Energy chapter from The Report: Gabon 2016