feature by Senam F. Gbeho
Accra, Nov. 19, GNA - Since its discovery in Ghana, gas has played a major role in the economic development of the country. Presently, Ghana’s gas supplies primarily cater to the needs of her power sector (approximately 90 per cent goes towards thermal plants for electricity generation).
Taking account of some initial supply challenges, Ghana’s main gas sources – Domestic (associated and non-associated gas from Ghana's offshore fields) and Nigerian, via the West African Gas Pipeline (WAGP) – have become increasingly more reliable and have helped the country diversify – move away from over-reliance on hydropower and more recently on expensive large crude oil with its attendant adverse impact on the environment.
Going forward, Ghana seeks to aggressively pursue development of new downstream gas-based utilization options in pursuit of its industrialization agenda, so more gas would be required to meet expected hikes in demand from both power and non-power consumers.
Domestic gas resource development aids Ghana to monetize its oil and gas resources, promote a comprehensive home-grown industrialization agenda, attain vibrant upstream investment activity, boost economic growth and land cheaper gas and electricity prices in the long run.
However, there is an emerging view that domestic gas resource development may lose its priority amidst ongoing efforts to secure alternate gas supplies through expensive LNG projects with high take-or-pay commitment for both the imported gas commodity and the Floating Storage and Regasification Unit (FSRU) infrastructure.
Added to current concerns about high capacity charges for under-utilized Independent Power Producer (IPP) plants, the short to medium term financial burden on the government purse will call for a major re-evaluation of the policy choices being taken by government.
Recent developments in the domestic gas sector provide some reassurance of Government’s determination to prioritize domestic gas resource development.
The WAGP reverse flow project, completed in August 2019, paved the way for the transmission of gas from the Western Region, to various gas off-takers in the Tema – Accra power and industrial enclave.
This is a critical piece of infrastructure for gas producers currently situated in the west, previously constrained by limited pipeline capacity for gas delivery to the east. The recent relocation of the Karpowership plant (an Independent Power Producer), from Tema in the east, to Takoradi in the west, leverages on increasing utilization of indigenous gas, and is further proof of Government’s intentions to address the infrastructure constraints stifling growth of the gas sector.
But while these developments may comfort some stakeholders, the paradox of pursuing Liquefied Natural Gas (LNG) importation at this early stage of developing the nascent local oil and gas industry is yet to be reconciled by policymakers.
Attempts to secure gas supplies, which include consideration of LNG importation in the near term, have led to questions over Ghana’s policy position on the prioritization of domestic gas resource development. LNG may have an inherent competitive advantage in being a readily available source if one factors in the uncertainties associated with making new gas discoveries upstream.
However, LNG projects are capital-intensive and not without problems of their own in the construction phase, while tanker transportation risks exist. It is understandable that the relatively high price at which non-associated gas from the country’s offshore basins is available may have made a case for competitively priced LNG.
With some global gas producers looking to offload their excess gas aggressively, expectations are that LNG prices will be even more competitive.
On the basis of a price analysis only, LNG may seem attractive, but in the long-term, economic gains to the country far outweigh any short-term financial gain.
LNG is treated by some as an inevitable supply source that is required for Ghana’s supply mix, but the emergence of Ghanaian-based non-associated gas producers that guarantee close to 100 per cent uptime in gas supplies, weakens the case for LNG.
In the last couple of years, there have also been significant improvements in the uptime of gas infrastructure that has rendered post-commission challenges with WAGP and associated gas a phenomenon almost completely relegated to the past. It is for these reasons that the timing of LNG importation at this stage of Ghana's gas industry development has attracted criticism from a quarter that believes that policy makers should do more to encourage the contribution domestic gas sources can make.
Citing the negative impact that a future gas supply deficit will have on the economy as justification for LNG importation, tends to overlook the presence of an alternative solution from within the sub-region.
While skepticism surrounding WAGP gas supply reliability is valid, a frank assessment of commercial factors that played into past difficulties is wanting.
Justified or not, Ghana did not honour payment terms of its WAGP contract at a time and this exacerbated the misunderstanding between buyer and seller. With recent ongoing expansions associated with the WAGP project coinciding with significant increases in gas supply from Nigeria through this very infrastructure, there appears a distinct advantage for Nigerian suppliers going forward.
To protect this burgeoning market, they could make more gas available through the WAGP in anticipation of LNG arrivals, and thus gain favour with Ghanaian buyers. Negotiations and leverage inform commercial terms with Nigerian suppliers, so honouring contractual obligations will be key for Ghana to benefit from the vast gas basin that Nigeria represents. WAGP represents an asset that Ghana co-owns, and policymakers would be remiss not to maximize its return on investment, through the continued usage of the pipeline.
LNG importation is bound to influence parameters for policy making, and gauging the attractiveness of investment into Ghana’s upstream oil and gas sector. For starters, the economics of an LNG deal is premised on a buyer’s commitment to significant gas volumes under long-term contracts. According to Reuters, the Tema LNG project currently under construction is expected to supply approximately 1.7 million tonnes of gas per annum, equivalent of 250 mmscfd, for storage and regasification by the second quarter, 2020. Such volumes under take-or-pay contracts, if not set right, would severely over-burden the country with cash flow constraints. Policymakers must ensure market demand exists to offtake imported LNG for the duration of such contracts, or risk ballooning energy sector debts. Analysts have warned that such an arrangement puts too much risk on Government, and advised that private sector may be more capable of risk mitigation. Bringing significant LNG volumes online at this time could also undermine efforts to convince upstream investors that new domestic gas discoveries will find demand in the emerging domestic market. LNG importation goes to promote oil and gas upstream activity in the countries of origin, typically outside the African continent, undermining efforts to shift economic paradigms and ensure that Africa’s resources are leveraged for structural transformation and economic benefits from foreign direct investment. For further exploration and development of Ghana’s oil and gas resources, the investor is a key ally that is likely to interpret current efforts towards sourcing imported gas for the country negatively.
There appears to be a “gas obsession” on the part of policymakers, who in a panic from the socio-political fallout from Ghana's recent energy crisis traumas, may be looking for the proverbial silver bullet to mitigate future uncertainties and supply shortfalls. The impact a gas supply deficit has on the economy is undeniable, as witnessed from the prolonged blackouts previously endured, also known locally as “dumsor”. This may have led to LNG importation being hurriedly positioned as a pre-ordained remedy, in lieu of other practical solutions, such as sourcing gas from a regional pool currently led by Nigeria. With new gas discoveries in the Gulf of Guinea, a move to optimize regional gas resources that are closer is strategic and circumvents the geo-politics of LNG purchases from other continents. A change of policy orientation premised on the integration of regional gas resources could bring about new opportunities and linkages between markets in the West Africa sub-region. Gas could be positioned as the catalyst for promoting policy coordination to achieve tangible energy projects and investments. For such shifts to occur, policymakers in the region would have to lose the apprehension, think ambitiously and lead in persuading political actors of the need for a decisive change in policy orientation, in favour of leveraging domestic and regional gas resources as priority.
Ghana’s emerging gas industry requires policy realignment as it develops, to address issues that could not have been envisaged at the onset.
Of critical importance is the ability for policymakers to anticipate trends in the complex global gas market that have consequences on country policy objectives. The LNG debate has provided a glimpse of the delicate balancing act that is required by policymakers.
In addition, policy makers could do well to take stock of the significant contributions of domestic gas resource development thus far. The Ghana National Gas Company (GNGC) currently meets over 60 per cent of the country’s demand for Liquefied Petroleum Gas (LPG) and successfully supplies two ceramic plants, paving the way for the beginnings of a home-grown petrochemicals industry.
Structured engagements between industry stakeholders at this year's Ghana Gas Forum in Accra, from November 18th to 20th, 2019, will provide yet another opportunity for deliberations that bolster gas policy formulation. This year’s theme of “Promoting Dynamic Policymaking Towards the Optimization of Regional Gas Resources” provides the opportunity for stakeholders to assess opportunities that come along with regionalizing the gas agenda to take advantage of the increasing gas resources available to the sub-region. A forward-looking view in the country’s best interest can only be forged from gas policy discussions that help to reflect on the new realities that countries in the African Continental Free Trade Area will be required to navigate sooner than later.GNA