SUMMARIZED

CASE STUDY
for the
establishment of a
CRUDE OIL
REFINERY
In Equatorial
Guinea

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in the business(es) so-proposed should not rely on the
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entity]. In furnishing this summarized case study, the

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substantial information with respect to the business(es)
proposed and its (their) future prospects, and there are a
substantial number of risks associated with an investment in
the businesses so-proposed, which are not set forth in this
summarized case study

Furthermore, the potential fulfillment of forward looking

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subject to change due to unexpected events, market shifts, or
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Background Information
THE BASIS
This business case has resulted from the keen interest expressed
by some Arab investors in investing sizeable funds [billions
possibly, denominated in US dollars] in viable ventures inside of
appropriate industries in any country of the continent of Africa.
One key requirement of this group of Arab investors is that they
get political protection for their investment[s]; a requirement
that explicitly implies that a sovereign government of the
sovereign nation in which the investments will be domiciled,
guarantees; by way of signed agreements, treaties, waivers
and/or sovereign irrevocable bank guarantees; the funds being
placed.
This business case proposes EQUATORIAL GUINEA as the
destination-nation for the proposed investment for two key
reasons
i. Key stakeholders in this project have access to and have
guaranteed the Arab investors same to the highest political
leadership of Equatorial Guinea none other than the
President of Equatorial Guinea Teodoro Obiang Nguema
Mbasogo
ii.

Certain variables as regards Equatorial Guinea Political,

Economical, Social, Technological, Legal and Environmental
makes Equatorial Guinea the right destination-nation now for
the proposed investment. More on this to come in a later
section of this [business] case

We believe an opportunity exists for the establishment of a

CRUDE OIL REFINERY in Equatorial Guinea specifically on the
island of Malabo, where the countrys oil and gas industry is
primarily based.
This business case examines what it would take to actualize this
project of a crude oil refinery in Equatorial Guinea

Business need & current situational analysis

The global oil and gas industry as it is today is undergoing
disruption at unprecedented scales. This case will argue that
the massive turmoil the industry is undergoing presents
opportunities for [industry] players who have considerable
resources to bet [in the industry] and know enough to
hedge their bets. In this section of this business case, we will be
highlighting some of the key changes/trends unfolding in the
industry and their implications for the crude oil and gas refinery
being proposed to be sited in Equatorial Guinea.

Oil and gas industry fundamentals are being called

into question
Prior to todays situation in the oil and gas industry, the mix of
key fundamentals global macroeconomic conditions, supplydemand balance, regulatory frameworks around the industry and
her players, cost implications inherent inside of industry players
operations, prices of inputs and end products in the industry; as
well as the impact of political power plays on the industry had
ensured that:
1. The industry dominance, long enjoyed by suppliers of [input]
products, has continued to wane
2. Trade in natural gas has evolved from being a regional affair
to being global in nature
3. Trade in crude oil [and her derivatives] has evolved from
being a global affair to being regional in nature [NOTE the
converse situation relative to natural gas markets]
4. There has been a massive shift in the global energy mix
5. Interdependencies amongst nations as regards their
individual oil and gas industries has continued to increase
With the current decline in prices of crude oil, all of these
fundamentals are being called to question hence the disruption
the industry has experienced [and continues to experience]. As at
December 2014, price of crude oil averaged out at $100 per
barrel [as benchmarked by the price of West Texas Intermediate
crude prices]. That same month, this benchmark fell to $60 a
barrel. Today [November 2015], this benchmark is $41 a barrel or
thereabouts. The key driver of this trend is the ongoing glut in the

world markets coupled with falling demand [as alternate energy

sources come into the mix] resulting in prior industry trade flows
getting altered. Lets examine some of these [altered] trade flows

1. North American region [consisting of the United States,

Canada and Mexico] is evolving into a distinct self-sufficient
trading block; majorly because of the abundance of inputs
[crude oil] being obtained through hydraulic fracturing
2. As a result of (1) above, Russia, who used to trade her
considerable oil and gas resources extensively with the West,
now seeks trade partners in the East China, India, Greece
to take up the slack
3. OPEC, a global power block in the industry, is also seeking
new markets for her members; as it aspires to meet the
differing requirements of her member countries
4. Natural gas as well as her liquefied counterpart is being
consumed closer to their sources. Economic considerations
drive this trend; contrary to commonsense expectation
that the trade in natural and/or liquefied gas would be global
in nature
5. The markets in crude oil and gas is shifting from being a
sellers market to being a buyers market implying that
players in the industry are rethinking their business models
and looking again at their costs relative to the magnitude of
their operations, in order to continue to guarantee
reasonable returns in the short and long terms on their
investments
Of all of the industry fundamentals mentioned, the supplydemand dynamics seems to be the most impactful and would be
worth a good look
Supply and demand
[SUPPLY]
The most impactful [supply-side] disruptions the oil and gas
industry has suffered in the last two (2) years are traceable
to happenstances inside of the United States. The key driver
is the use of hydraulic fracturing by oil majors inside of the
United States for exploration purposes. The direct implication
is that the United States is now 90% self-dependent when
it comes to her oil and gas resource needs; up from 70% in
2005:

i.

ii.
iii.

In the last four (4) years 2011, 2012, 2013 and 2014;
20,000 new shale wells have come on stream in the
United States; boosting US crude production to 9 million
barrels per day! If natural gas liquids are included, that
comes up to 12.5 million barrels per day!
Another key indicator US share of the global supply of
tight oil [shale oil or light tight oil] has risen from 0.5%
to 3.7%
One last key indicator cost of producing crude oil in
the United States presently averages between $10 and
$20

Key implication Oil majors have lost the United

States as an anchor and captive market!

Another dynamic affecting the supply-side balance in the

industry is the rise of new and newly-new oil majors;
especially from the Middle East. The emergence of these
new players could effectively thrash the present supplyside dynamics in the industry. For instance, crude from fields
inside of Southern Iraq and Iraq Kurdistan is expected to hit
the global markets soon. Also, crude from Iran, one of the
worlds largest producers, is already finding its way into the
global markets as the p5 + 1 nuclear treaty [agreement]
comes on stream and sanctions presently in place are lifted.
Lastly, Brazil is expected to ramp up her production of crude;
which will ultimately find its way to the global markets. In all,
on a global scale, the balance of crude oil sales flows tends
towards markets in the East Asia, to be specific, for the
following reasons
i. Middle East producers are directing their flow of oil
sales towards Asia, as their share of the United States,
Canada and Mexico markets fall; due to the selfsufficiency playing out in the markets there.
Simultaneously, they are also trying to expand their
share of the European markets
ii. Russia is also turning towards Asia for buyers; key
reason being that Europe her major [captive] market
is actively seeking to diversify her supplies base; due to
security concerns
iii. Smaller suppliers such as Nigeria and Angola are
also looking to the markets in Asia to push their product
sales
It is expected that this supply trend continues in the near-tomidterm future; aided by the soon-coming uplift of the ban
on United States crude oil and gas exports.
Amongst the industrys legacy suppliers [for example,
OPEC], there is a scramble for market share; no matter
what it would cost to grab the market share. Thus, we have a
situation on hand where OPEC decides to maintain
production at 30 million barrels per day in her November
2014 meeting in Vienna. OPECs immediate strategy is clear
keep the volumes in the marketplace[s] and hold down

market share, never minding if the ensuing glut causes

prices to plummet and making it a priority to edge out [as
much as its possible] the United States, Russia and Brazil
out of the markets.
If I reduce, what happens to my market share? The price
will go up, and the Russians, the Brazilians, the United
States shale oil producers will take my share
Ali Al-Naimi
Saudi Oil Minister
December 2014

[DEMAND]
The majority of oil majors predicated their business models
on demand for crude oil and gas plus derivatives out of four
key centers the United States, [West] Europe, China and
Japan. The current supply-side dynamics in the markets is
breaking this up. According to the International Energy
Agency, [global] demand for [crude] oil and gas plus
derivatives will grow only by 0.9 million barrels per day in
2015. That point being made, a look at each of these four
key centers would be appropriate; in order to paint a
picture of what the future bodes for demand from each of
these centers
1. United States [crude] oil and gas imports are dropping and
will continue to drop for reasons well-enunciated above;
2. [West] Europes demand for [and hence import of] [crude]
oil and gas is reducing and will continue to; for some time in
the nearest future. The key reason here is her shrinking
economy. [West] European demand for [crude] oil and gas
plus derivatives is forecasted to rise to a peak of 14 million
barrels per day through to 2040.
3. China has remained [and still remains] a [crude] oil and
gas plus derivatives demand center. In December 2014,
China hit 7 million barrels per day of [crude] oil and gas plus
derivatives imports up 13% from the previous year. This
demand is projected to rise up to as much as 18 million
barrels per day by 2040. The key driver here is the
[continuing] growth of the Chinese economy 7.7% in 2013
and 7.4% in 2014 substantial growth rates in a $9 to $10
trillion economy. It is worthy to note that the Chinese
government, in the recent past, had been willing to pay top
dollar rates for [crude] oil and gas plus derivatives imports;
but with the supply glut in the markets now, that willingness
will increasingly fade.
4. Japan, the worlds third largest consumer of [crude] oil and
gas plus derivatives as at 2014, has seen its demand drop by
22% since 2000 due to such structural factors as an

increasingly aging population, a not-so-expanding economy

and the governments drive at achieving alternate and
efficient energy targets. This demand will keep falling midterm to long-term as the country resumes its use of nuclear
energy as its primary source of energy.

Overall, here are expected [demand-side] trends in respect

of [crude] oil and gas plus derivatives
i. Asia Pacific region will account for an estimated 70% of
global demand for [crude] oil and gas plus derivatives
right through to 2020
ii.

Demand for [crude] oil and gas plus derivatives

amongst the major consuming countries Mexico,
Brazil, India, China, Indonesia, Kuwait, Oman, Egypt,
Tunisia, Morocco and Malaysia is expected to increase
and keep increasing. Also, expect governments of these
countries to keep cutting down on fuel subsidies [worth
$1.9 trillion in 2011]; implying that the [local] markets
in these countries would be more free and more open

iii.

Demand for [crude] oil and gas plus derivatives in the

Middle East will keep rising

iv.

Demand for [crude] oil and gas plus derivatives in North

America and West Europe will keep contracting

[NATURAL GAS SUPPLY-DEMAND: ONE LAST LOOK]

The supply-demand dynamics in the global trade in natural
gas is worth one last look. The key driver of this dynamic is
again the United States! Shale gas production, again,
through hydraulic fracturing, has driven down the prices of
natural gas in the markets in the United States; while at the
same time propelling the United States into the position of
the worlds largest producer of natural gas. In the short term,
one should expect exports of United States natural gas [as
Liquefied Natural Gas] to hit the markets in Asia and Europe
driven by the price differentials [as much as $6/MMBtu]
that exist between the two markets.
Still on natural gas supply-demand dynamics, Australia has
62 million tons of newly-installed capacity scheduled to
come on stream by 2018 a move which will turn it into the
worlds largest exporter of Liquefied Natural Gas. As a result,
it is expected that natural gas exporters like Qatar and

Russia will face stiff competition in the markets in which they

ply their wares from Australian gas.
Overall, due to such impediments to a global Liquefied
Natural Gas trade as pressure from environmental rights
activists, US manufacturers [who oppose exports of LNG in
order to preserve the commoditys price], natural gas price
narrows across disparate markets, weak crude oil prices it
is expected that natural gas exports will continue to flow to
markets that are geographically proximate to their source
regions.

Emerging trade patterns

As a result of all the dynamics explored above, new global trading
patterns in the oil and gas industry is emerging
1. The US-Canada-Mexico trading block is unfurling due to
a. The rise in the production of [unconventional] shale oil
and gas in the United States
b. The easing of regulatory restrictions inside of Mexican
markets
c. The high costs incurable in exporting crude oil and gas
beyond the North American region
d. Cultural/geopolitical alignment
2. Russia-China-India
China and India are striving to diversify supply sources, while
Russia at the same time is seeking new markets. It is
expected that this meeting of [like] minds should play out
vividly in the nearest future:
a. Russia now supplies 12% of all of Chinas crude oil
imports
b. In May 2014, Chinas CNPC and Russias Gazprom
signed off on a $400 billion deal for 38 billion cubic
meters of natural gas to be delivered over pipelines,
beginning 2018
c. It is forecasted that Chinas natural gas demand will
increase 6% yearly through to 2035
d. Russia currently has commercial contracts worth all of
$100 billion with India:

 Nuclear energy agreements - $40 billion

Supply of crude oil and gas - $50 billion
Defense, agriculture and aerospace - $10 billion

3. OPEC
OPEC has the short end of the stick in the emergence of
these trade patterns. Seemingly, OPEC is being shut out of
key markets [China, India, North America]. An interim
mitigation strategy would be for it to expand its share of
[West] Europes market, while saying a prayer for West
Europes economic turnaround; even as it [that is, West
Europe] pursues a strategy of diversifying its supplies of
energy from its primary supplier [Russia]. If this [West
Europes] economic turnaround does not happen soon, OPEC
would be in the doldrums.
China and India are other bright lights on the horizon for
OPEC, if the bloc can successfully fend off overtures for
these markets from Russia. [In 2013, approximately 71% of
Chinas and Indias crude oil and gas as well as petroleum
imports were fulfilled by OPEC countries]

What the [business] opportunity is

Every analysis about the global trade in crude oil and gas plus
derivatives brought to the light so far indicates a truth that keeps
reverberating there is a surplus of raw crude oil and gas in
the global markets; while there is relative scarcity of the
end-products obtained from the refining of these products
in specific centers of the global oil and gas value chain.
The implication is that there exists a real opportunity for
refined petroleum products in various markets of the
world.

Where the [business] opportunities are located

In as much as there is a glut of crude oil and gas plus derivatives
on the global market, there exists opportunities in the same
markets for key reasons
1. As mentioned earlier, trade in crude oil and gas plus their
derivatives tend to be oriented around regions or regional
blocs rather than globally. The implication is that there
are those fringe economies, OUTSIDE OF THESE
TRADITIONAL TRADING BLOCKS, desirous of access to
crude oil and gas plus their derivatives. More often than
not, these fringe economies are transitioning in nature
from prior industry-based economies to service- based ones,
have a moderately-educated youthful population and have
GDPs growing by at least 5% annually. These fringe
economies, aggregated together, are the market blocs
of the future and it is in this market that an entrant
should primarily focus efforts and resources on. Some
key examples of these fringe economies include
a. Zambia 2014 GDP growth at 6%, GDP at $27 billion;
population at 15.72 million;
b. Vietnam 2014 GDP growth at 6%, GDP at $186.2
billion; population at 90.73 million;
c. Uganda 2014 GDP growth at 4.5%, GDP at $26.31
billion; population at 37.78 million;
d. Nigeria 2014 GDP growth at 6.3%, GDP at $568.5
billion; population at 177.5 million;

e. Kenya 2014 GDP growth at 5.3%, GDP at $60.94

billion; population at 44.86 million
2. Global trade centers earlier mentioned also represent
an opportunity, albeit one that has to be strategically
cultivated; because of the cut-throat competition that
plays out in these markets

Key Recommendations
1. Equatorial Guinea has [proven] abundant resource
reserves [for example, crude oil, gold, diamonds,
coltan, bauxite]; all available in commercial quantities
2. Present Equatoguinean government policies as centered
around the countrys extractive industries presently provide
support to entrepreneurs and prospective investors
interested in the countrys natural resources. Current
Equatoguinean government policies as centered on
the countrys extractive industries also tilt towards a
Public-Private Sector partnership framework for the
development of the countrys various resource bases.
One big advantage any investor can leverage on is a
connection to the current political leadership in the
country [Equatorial Guinea]. This kind of connection
will protect investors resources in terms of capital,
machinery and equipment; and ensure that at vital
cross-roads as the project unfolds, there is some
political leverage available to get things done
3. Prospective investors in Equatorial Guinea would have to
source required human resources from outside of the
Equatoguinean economy. Literacy rate(s) in Equatorial
Guinea presently is low and the country has practically no
technical-base upon which such complex projects as those
proposed can be executed
4. Due diligence and a proper business case of the
opportunities outlined within the context of these projects
being based in Equatorial Guinea has to be carried out [or
commissioned] by the proposed investors into the projects.
This summary case should not be construed to be
self-sufficient by itself in describing the opportunities
and risks involved in the proposed projects
5. The proposed projects requires that ample financing be
available; in order to wait out [possible or real] price
slumps in the commodities market