For a country that a few years ago was pumping less than 1000 barrels of oil per day (bpd), Ghana’s upstream oil and gas industry has undergone a massive change. As it begins only its second year of production, Ghana’s oil segment is poised to earn GHS1.24bn ($827.85m) in revenue in 2012, while accelerating activity in the gas sector in the coming months will help improve both the sustainability of the hydrocarbons industry as well as the country’s balance sheet.
The country’s finance and economic planning minister, Kwabena Duffuor, announced the oil earnings forecast as part of the government’s 2012 budget announcement in parliament on November 16. Duffuor also said that overall economic growth is expected to reach 9.4% — far oustripping OECD averages, as well as many of Ghana’s continental peers — partly due to oil revenues and investment related to the energy sector.
While the oil sector has attracted a great deal of international attention and investment, the Ghana National Petroleum Corporation (GNPC), the state oil company, has been careful to temper excitement by pointing out that revenues will not transform Ghana overnight. Production levels are modest and the country’s traditional commodities – including gold and cocoa – will continue to dominate the economy.
However, oil is providing a comfortable boost for the country’s GDP. Just 42 months after discovery — the fastest turnaround in the modern history of the sector — production on Ghana’s Jubilee field began in December 2010 and has reached 80,000 barrels per day (bpd).
Exploration of other offshore blocks has intensified as work on Jubilee has progressed, and the government is also encouraging research into onshore sites. Technical exploration of the Volta Basin, an area that borders neighbouring Togo, is expected to lead to expanded onshore production in five to 10 years.
Estimates of Ghana’s reserves involve a degree of guesswork, but GNPC officials have conservatively estimated that reserves total at least 1.25bn barrels, while more ambitious estimates have mentioned figures as high as 5bn barrels
Tullow should be able to ramp up production to its plateau rate of 120,000 bpd in 2012, after technical issues led to delays. The firm had previously expected to reach plateau level in August 2011.
One of the issues constraining the growth of oil output in Ghana has been a lack of capacity for handling the associated natural gas produced in the oil extraction process. The government has pledged not to flare the gas for environmental reasons, but Ghana has not had the infrastructure to process the associated product and reinjecting gas is feasible for only so long.
However, with a chunk of funding now in place, the country may soon see concrete progress towards a sustainable and functioning downstream gas sector. In August 2011, Ghana agreed an $800m loan from the Chinese Development Bank, part of a broader multibillion dollar package of concessionary financing from Beijing, for the construction of natural gas infrastructure that will allow it to siphon off, process and, ultimately, use the associated gas.
Being able to use, rather than wastefully flare, the gas will bring its own benefits to Ghana. Initially, it will mainly be used to supply the Aboadze gas-fired power plant, but over the longer term, the country hopes to export gas, which can also be used as a feedstock in industry, including the petrochemicals sector.
George Sipa-Adzah Yankey, the head of the Ghana Natural Gas Company, has said that he expects production to stabilise around 4.4m cu metres per day. The initial Chinese-funded infrastructure will take 12 to 18 months to install, and commissioning is expected to start in 2013 at the latest.
Thus the next two years should see significant developments in Ghana’s rising hydrocarbons sector, with production ramping up, exploration continuing and the all-important associated gas infrastructure easing a bottleneck, all the while providing the country with a beneficial increase in gas supply.
Sector earnings, while not as high initially as some Ghanaians might have expected, should provide an important growth driver and source of public revenue that is most welcome during a period of global economic uncertainty.