Economic Update

Encouraged by the rapid development of its nascent oil sector – which began production in record time and helped push GDP growth up to 13.6% in 2011 – Ghana is hoping to cash in equally as quickly on its natural gas reserves but is still navigating the sizeable infrastructural hurdles that need to be overcome in the short term.

The country’s reserves are currently estimated at 5trn cu ft, which offers significant potential both for industrial usage and domestic consumption. The opportunities the still-undeveloped sector offers are large, which has pushed it front and centre on the government’s policy agenda. At the Ghana Gas Forum, held in mid-February in Accra, George Sipa-Yankey, the acting CEO of the Ghana National Gas Company (GNGC), stated that the government is determined to build a vibrant and sustainable gas industry in the country and added that the first supply of gas could come online by 2013.

The first step in this regard has already been taken, with parliament approving an $850m loan from the China Development Bank (CDB) to build a new gas plant. The $850m loan is part of a larger $3bn agreement between the government and the CDB to finance a variety of infrastructural development projects.

China’s Sinopec, a petroleum and petrochemicals company, is set to build the necessary infrastructure for the plant, which will be linked to the Jubilee Field. The project will also include a series of pipelines to bring gas from the offshore field.

Although the plant’s location was originally slated for construction in Bonyere, the government now plans to relocate the project to Atuabo, which will reduce the length of pipeline needed to connect to the gas plant by around 23 km.

The Ghanaian government plans to keep to its “no flaring” policy, which prohibits burning extracted gas as a by-product of oil exploration at the Jubilee Field. Thus far, Jubilee’s production consortium has been re-injecting the gas back into the oilfield, but Tullow Oil, Jubilee’s biggest partner, has stated that this procedure will be hard to sustain as oil production levels increase.

Once gas production actually comes online, one of the first priorities for its exploitation will be domestic consumption. Ghana’s energy demand has grown significantly in recent years, occasionally leading to load-shedding. Gas reserves will help decrease the cost of thermal energy generation, as demand for electricity from thermal power generation is predicted to reach 10,000 GWh by 2015.

Since the country’s thermal plants are prepared to run on both light crude oil as well as gas, Ghana will be able to cut energy production costs by substituting light crude oil-based production for cheaper gas-based thermal generation. The country has been importing gas from Nigeria through the West African Pipeline, but supply has been unreliable in recent weeks, which has prompted the government to look for more reliable sources of gas. While the country’s priority will be to use gas resources for electricity generation, some of the gas could be geared towards industrial production, as Ghana attempts to scale up its secondary sector to boost employment and value-added activities.

The prospect of accessible feedstock has already attracted the interest of foreign investors. India-based Rashtriya Chemicals & Fertilisers Company signed a memorandum of understanding in 2010 with the Ghanaian government with the aim of building a $1.1bn fertiliser plant at the Shama industrial area in Ghana’s western region. The factory is set to be operational by 2016, but finalisation of the deal will be dependent on a final agreement regarding to gas price and quantity.

Gas reserves will also help to push more and more consumers to liquefied petroleum gas (LPG). Joe Oteng-Adjei, the minister of energy, has stated that the government is targeting an increase in the use of LPG in domestic and public institutions from the current 12% to 50%.

As the country strives to balance the need for electricity generation and demands for further industrialisation, Ghana’s gas reserves will certainly have a major role in sustaining economic growth.