Business Analyst - July 5

Tuesday, July 5, 2022
The infrastructure
comprises : Offshore gas
export pipeline, which
consists of a 12 inch diameter
58km long subsea pipeline,
transporting dense-phase gas
from the Jubilee FPSO to the
Gas Plant; the Gas Processing
Plant (GPP) itself at Atuabo in
the Western Region; Onshore
gas pipeline, which consists of
a 20 inch diameter 110 km
pipeline, transporting sales gas
from the GPP to an existing
Thermal Power Plant at
Aboadze; and a LPG truckloading
gantry located
approximately 2.5km from the
GPP near Anokye.
Ultimately this has cut
Ghana’s import bill for diesel
oil drastically enabling the
country to turn its erstwhile
trade deficits in trade
surpluses since the end of 2016
without having to engineer a
huge increase in export
revenues; which in turn has
served as a pivotal contributor
to the cedi dollar exchange
rate stability which the
country enjoys till today.
The achievements thrown
up by the Atuabo plant and the
identified potentials of the
planned second one has
inevitably put GNPC on the
defensive, more so since there
are worries about impending
excess capacity.
Those worries are increased
by the fact that the gas
produced from the Sankofa
field is being taken by Ghana
on a take or pay basis which is
causing Ghana considerable
financial stress.
In 2016, the government
agreed with the oil company
ENI to buy gas from the
Sankofa offshore field on a
“take-or-pay” basis, as is
common in gas supply
contracts Take-or-pay means
that if a country cannot use all
the gas it agrees to buy, it still
has to pay the agreed amount
to the company.
To ensure that it took all
the gas that it had agreed to
buy, Ghana needed to develop
pipes and cables to transmit
the gas from the southwest of
the country, where the gas lays
offshore, to the east, where
most people and businesses
are. Unfortunately, heavy
spending on the power crisis
by the state power companies
saddled them with
debt. Partly, this prevented the
state companies building
enough infrastructure in time,
and so failed to take much of
the gas as agreed. Meanwhile,
they struggled to pay for what
they did actually use. By 2019,
the government said this
“pose[d] grave financial risks
to the whole economy […] We
are in a state of emergency and
must therefore respond with
urgency and boldness.”
Ghana first negotiated with
ENI to reduce the price it paid
for gas and then allowed ENI
to pay less in taxes. Yet, the
penalties continued to mount.
By 2020, government estimated
the country would be paying
up to $850 million annually in
take-or-pay penalties, or 7
percent of the entire
government budget.
This shows that excess
capacity could be dangerous if
it is contracted on take or pay
basis. However GNPC points
out that this is not the case
with its Floating
Regasification Plant (FRP) at
Tema.
The Floating Regasification
Unit (FRU) of the terminal
arrived in the country on the
January 7 2021, the first of its
kind in sub-Saharan Africa,
has, however, been met with
criticism by industry experts
and CSOs along the energy
sector for having the potential
to increase the menace of
unutilised gas and negatively
affect development of local gas
resources.
But GNPC’s CEO, dr. Kofi K.
Sarpong, justifying the
investment in the new facility,
insists it offers an opportunity
to secure the country’s future
energy needs by increasing the
energy mix for power
generation and industrial use,
as well as fuel for vehicles.
“The new LNG is cheaper
than Sankofa and it is cheaper
than the gas coming from
Nigeria although prices can
change anytime but as I speak,
the formulation is cheaper
than the one coming from
Sankofa. The only ones which
are cheaper are Jubilee and
TEN but they cannot give you
the volumes you need because
of production constraints and
challenges from the Ghana Gas
plants,” he asserts.
Buttressing his point, he
explains that gas demand has
gone up significantly in the
past two years, from about 211
mscfd in 2019 to 296 million
mscfd in 2020 and is expected
to exceed 300 million mscfd in
2021.
This level of growth, GNPC
insists, cannot be matched by
local production alone. “People
make the mistake that we are
producing so much gas
domestically and therefore,
there is no need for LNG. What
GNPC is doing is highly
competitive and in four years,
Ghana has the
capacity to produce 365
mscfd of gas from the
Jubilee and the TEN
“Currently
cluster which produce
wet gas. however, the
Atuabo gas processing
plant’s capacity is less
than half of this, at 150
mscfd. This has
restricted actual wet gas
throughput to 130
mscfd, which is almost
the full installed gas
processing capacity
Ghana currently has.
demand should outstrip the
current supply” asserts dr
Sarpong.
GNPC also argues that the
new LNG facility will expand
the energy mix for power
generation, pointing out that
there can be unexpected
technical challenges that
curtail local gas production, a
situation which indeed has
happened in the past.
dr Sarpong points out that
“in Tema where we have
installed the LNG plant, the
demand for gas is 250 million
mscfd, which explains why we
still take from Nigeria and
from the western Ghana to add
up to gas requirements in
Accra.
“There are power plants
with installed capacity of
about 1500MW and that will
need about 260 mscfd. We
cannot get that alone from the
West, we have to even
transport some along the West
Africa Gas Pipeline which
costs us more money and it is a
major issue in terms of cost.
When you add that to the
Sankofa gas, it is way too
expensive,” he indicated.
Explaining further, dr.
Sarpong explains that the
argument that Jubilee gas is
cheap will soon expire because
when the field’s foundation
volumes, which are free to the
country, are finished, in about
two years from now, Ghana
will have to start paying for it.
A number of CSOs
including the Institute for
Energy Security (IES), have also
expressed concerns that the
Tema LNG Terminal could
worsen the unutilised gas
menace, which the country
pays about US$700 million for.
“If you bring in gas on pay-ortake
basis, it will definitely
increase the burden on
government but ours is not
like that,” dr. Sarpong assures.
“We have carefully agreed
with the suppliers to start
from a lower level of about
75million cubic feet. In the
second year, we will move to
125million cubic feet when we
must have identified enough
users to absorb that volume.
In the third year we will
move up to 150 million and in
the fourth we will go to 170
million and by the fifth year,
we will be doing about 200
million. So, we are using a
more cascading kind of
approach where you start from
a lower level and then build up
as demand increases,” he
noted
The facility has potential to
be scaled up to process 600
million standard cubic feet of
gas a day but the actual
contracted capacity to the
country is 250million cubic
feet of gas, according to GNPC.
The gas will be supplied by
Shell which controls about 30
percent of the global LNG
market.
The first shipments are
now being expected already.
Some industry analysts
however assert that GNPC’s
new facility is simply a
manifestation of a its desire to
win turf from Ghana Gas with
regards to gas supply in Ghana.
They point back to a
decision during the last
decade by government to bring
Ghana Gas under GNPC to
strengthen the latter’s balance
sheet thereby improving the
latter’s capacity to attract
commercial financing on
favourable terms. The decision
proved highly controversial
and eventually was rescinded,
releasing Ghana Gas from
under it.
But there is a school of
thought that GNPC having
tasted the feel of being in
charge of gas production and
distribution is unwilling to let
go entirely. Their fear is that
this could result in
competition rather than
cooperation between two state
owned corporations that each
have critical roles to play in
providing feedstock for energy
generation. In turn, they argue,
this is a recipe for excess gas
supply.
Actually, Ghana’s power
generators and industries
• Continued on Page 10