Africa Oil Business News

Tue08192014

Last update11:28:10 AM

Energy: Ghana's gas processing plant at the end of the rainbow

After a series of delays and technical problems affecting the whole value chain, the state-owned petroleum company's new chief executive promises lift-off in July.

Oil and gas – the great game changers – have taken Ghana's economy on a roller coaster ride.

Trailing great expectations for revenue and industrial development, the start of oil exports in 2012 made Ghana one of the fastest-growing economies in the world that year.

After a chapter of accidents, the International Monetary Fund (IMF) forecasts Ghana's economic growth could shrink this year to 5.5%, around a third of its level two years ago.

Finance minister Seth Terkper told The Africa Report that delays and shortfalls in the oil and gas industry were two of the reasons for the current foreign exchange crisis and for the government missing its targets to cut the budget deficit.

"On the revenue side, one of the biggest problems was the shortfall in petroleum receipts last year. We lost around ¢800m [$315m]. Another problem was the breach in Nigeria's gas supplies," Terkper explains.

This lack of gas – because of the break- down of the West African Gas Pipeline from Nigeria and from Ghana's own offshore Jubilee field – cost the country about $1bn in oil imports last year, a former senior official at the state oil company says.

These are the headaches inherited by Alexander Mould, who took over as chief executive of the state-owned Ghana National Petroleum Corporation (GNPC) in October 2013.

Although officials forecast that oil production could more than double to 250,000 barrels per day (bpd) by the beginning of the next decade, production now stands at just over 100,000bpd.

This is all from the Jubilee field, which has the capacity to produce at least 120,000bpd.

In two years, the Tweneboa-Enyenra-Ntomme fields to the west of Jubilee should add another 80,000bpd.

Companies have had technical problems too.

Last year maintenance at the Jubilee field and some unexpected engineering issues meant they had to cut production.

They have now asked the government to waive its ban on gas flaring for a limited period.

This follows a failed attempt to drill another gas re-injection well and continued delays in the commissioning of the gas processing plant at Atuabo in Western Region.

Gas policy is politically contentious.

Flaring means wasting a vital energy resource. Opposition parties and civic groups have lambasted the management of the Ghana National Gas Company (GNGC) under chief executive George Sipa-Adjah Yankey.

Critics claim China's Sinopec was not the best choice to build the plant because the company's strengths are in oil production and the price of $690.6m is uncompetitive.

Leveraging oil assets

Terkper says the decision to use a Chinese contractor, which would allow the government to draw on a $3bn credit it negotiated with the China Development Bank, was based on financial realities.

"We spoke to several private-sector contractors, and they all demanded a sovereign guarantee for the finance," he says.

Such a guarantee would have breached the debt ceiling imposed by the IMF after Ghana was reclassified as a lower middle-income country.

Instead, Sinopec is being paid indirectly out of Ghana's oil exports through a complex system that Terkper insists is far more accountable than conventional counter-trade deals: "We are leveraging the value of our oil assets, not collateralising them."

On 10 March, the GNPC's Mould announced the main engineering and mechanical work on the gas plant would be finished by the end of the month, and that the full commissioning of the system would take another three months.

If he's right and the gas starts to fuel the power stations, this could be the beginning of a much-needed turnaround in Ghana's energy industry. ●


The Africa Report