- Gov’t already paying over US$700m annually
Unutilised gas, which the country coughs out over US$700million yearly to pay for, could rise further following the arrival of a Liquefied Natural Gas (LNG) Regasification Terminal in Tema.
The Tema LNG Terminal arrived in the country last January and is expected to lead to a rise in gas imports of about 1.2 billion cubic meters (bcm) this year, according to Fitch Solutions. But given that the country is not able to utilise already existing gas resources, contracted on pay or take basis, experts believe the situation could be made more complicated.
“Although utilisation of domestic gas has been increasing, there remains significant un-utilised domestic gas. The risk of under-utilisation may even increase with the recently announced arrival of an LNG regasification Terminal in Tema,” says Giuseppe Valenti, Managing Director of Eni Ghana.
He said Ghana boasts abundant gas resources, and should focus on how it can attract investors to develop the offshore sector if it is to maximise returns on its hydrocarbon resources.
“Sankofa alone can deliver significantly higher gas rates to meet Ghana’s needs along with its economic growth,” said Mr. Valenti, whose outfit operates the Sankofa field Offshore Cape Three Points, adding: “This would allow the elimination of foreign gas imports and render Ghana fully independent in terms of power production – and COVID-19 has taught all of us about the importance of developing domestic resources for sustained economic development in the midst of a pandemic.”
In addition to currently producing fields, he indicated that Ghana has significant additional gas resources which could be developed provided that the right policy framework is put in place to incentivise continued investment in the gas sector.
Without such continued investment, he said, Ghana’s enviable position of abundant domestic supply could eventually be put at risk – while with the right policy framework, and looking to the current situation in terms of power sector in its neighbouring countries, the country may even consider opportunities to export its own gas.
“Ghana should focus on cutting fuel imports and fully develop its offshore potential to continue sustaining an attractive business environment. It is important to develop and apply clear rules and streamlined processes for petroleum contract negotiations, leveraging industry’s best practices and through consultation with the industry.
“Rushed decisions based on limited information, or unilateral actions made without sufficient engagement, may impact not only an individual project but also the country’s overall investment appeal,” he reiterated.
The unutilised gas menace
The cost of unutilised gas – over US$700million annually – has been a thorn in the flesh of government for some time now. The amount is the result of existing gas deals which the country is obliged to pay regardless of whether it uses the gas or not.
And Nana Amoasi VII, Executive Director of Institute for Energy Security (IES) – an energy think-tank, says he simply cannot understand why government would keep agreeing to new deals to import gas when it is not able to utilise existing gas resources contracted with local producers and foreign suppliers.
“IES agrees with the assertion that the Tema LNG project will increase the risk of unutilised gas, and we were expecting this government not to go ahead with the deal. The previous administration started it, but at the time they were in no position or did not have geological evidence to know that the country has abundant gas resources,” lamented, Nana Amoasi VII.
The country’s agreement with Tullow entitles the state to free deliveries of gas that the company extracts with crude from its fields. However, the country’s contractual obligations with other gas suppliers such as Eni SpA have rendered some of Tullow’s deliveries surplus to requirement. Meanwhile, it keeps signing new gas deals that have been heavily criticised by civil society organisations for placing an undue burden on government resources.
In 2019, for instance, government’s bill for unused gas – primarily due to the take or pay clause in the Sankofa contract – amounted to US$250million, due to a combination of lacking demand and delays in building associated infrastructure needed to offtake Sankofa’s gas.
Similarly, the International Monetary Fund’s 2019 debt sustainability analysis for Ghana highlighted the gas sector as a fiscal risk to the country, noting: “The off-take agreement for gas supply from the offshore Cape Three Points field [i.e. Sankofa] requires Ghana to make monthly payments equivalent to 0.7 percent of GDP annually.
“The country now pays a combined US$1.2billion yearly to pay for excess power capacity and gas which it does not use,” Dr. A. Ofosu Ahenkorah, a former Executive Secretary at the Energy Commission, told the B&FT last year.