New discoveries and increased investment contribute to Ghana's growth in oil exporting

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Ghana’s energy sector is both young and growing fast, with a second major oil and gas field set to commence production in 2016 and a third to follow soon. Legal and regulatory regimes are still being established, while improvements are being made to infrastructure to catch up with a rise in demand. This will alleviate obstacles to the use of domestic energy supply to speed up development. In the downstream market deregulation is likely to be the highlight of 2015, after a decision to end government price setting for main consumer fuels.

Increasing oil production, even in a lower price environment, will be particularly valuable at a time when Ghana is grappling with a budget deficit estimated at 7.5% of GDP. Oil has been a significant driver for the economy in recent years. In the year following the start of production in 2010, the country registered growth of over 14%. A report published in March 2015 by the Ghana Institute of Governance and Security suggests that the oil industry has contributed $2.7bn to national coffers over just four years of operation.

Context

Efforts at oil exploration in Ghana date back to 1896, and later shifted from onshore to offshore, leading to the 1975 Saltpond discovery in shallow offshore waters, yielding 267 barrels per day (bpd) in 2014. The state-owned Ghana National Petroleum Corporation (GNPC) was created in 1983 to oversee and exploit domestic petroleum resources, spurred on by nearby Nigeria’s major rise in offshore oil production. It was one of several companies in the 1990s to explore for deposits in the Gulf of Guinea. As a result, while oil production has taken place in Ghana on a very small scale for decades, it was only in 2007 that Swiss commodities trader Kosmos Energy found petroleum in commercially viable quantities.

In a rush to start reaping the benefits, Ghana’s government pushed for the fastest possible progress to first oil at what is now known as the offshore Jubilee field, and the lead operator, the UK’s Tullow Oil, complied: it set a speed record for offshore development, progressing to production 42 months later. Oil is expected to become the state’s biggest export and source of foreign currency by 2016, supplanting both gold and cocoa.

Hurdles

Despite these successes, bumps in the road have constrained the multiplier effects of oil production. Ghana had wanted to use its oil revenues to build infrastructure, facilitating faster economic development and poverty alleviation, and lengthy debate led to a robust petroleum revenue management framework. However, a combination of volatile global commodity markets and a jump in current spending – partly due to rising wages – has meant the rollout of new capital projects has slowed. As a result, despite the new revenues brought about by the Jubilee field, lower-than-expected oil prices and higher-than-expected expenditures have led the government to implement austerity measures, with an extended credit facility provided by the IMF in 2015.

At the same time, for all new projects scheduled to begin production there are major leaps in revenue anticipated. Another long-term goal for the energy sector is to build Ghana up as a regional centre for oil and gas activity, given the proximity of other large and moderate offshore producers such as Nigeria, Gabon and Côte d’Ivoire, with plans for specialised port facilities in the offing.

Production

Ghana is targeting a six-fold rise in oil production by 2018, the minister of finance and economic planning, Seth Terkper, said in May 2015, adding that he expected output to reach 242.3m barrels in 2018, up from 39.1m in 2015. Gas production is forecast to reach 37bn cu feet. Terkper’s comments follow statements from Alex Mould, the CEO of GNPC, who said he expected the firm to pump 190,000 bpd of crude oil by the end of 2016. To support the expansion, the company is turning to banks and capital markets for financing.

Reserves

As of late 2014 Ghana’s total proven reserves were 876.7m barrels of oil and 2.3trn cu feet (tcf) of gas, according to the Ministry of Finance and Economic Planning (MOFEP). The US government’s Energy Information Administration (EIA) reported in spring 2015 that Ghana had 700m barrels of oil. Average figures for 2014 vary by source, but lie in a tight range just short of 110,000 bpd, just under the original Jubilee targets of 120,000 bpd, putting Ghana 41st in terms of daily output worldwide, according to the EIA.

Revenues

Oil has joined gold and cocoa as a mainstay export and a chief source of foreign currency in Ghana, and production from new projects over the coming years is likely to see it become the leader in both of those categories. Oil revenue has climbed from 1.1% of GDP in 2011 to an expected 2.9% in 2015, according to IMF figures.

Petroleum revenues exceeded government expectations in 2014, chiefly thanks to a lower assumed oil price than markets delivered on average over the year. The total for the year was $978.9m, compared with a forecast of $777m, according to MOFEP. It was also 16% higher than the $846.8m in 2013, on account of increased payments of corporate income tax by producers.

Under the country’s petroleum revenue management framework, passed after much debate in 2011, Ghana’s petroleum revenue rules allocate 70% of the total for current spending, and 30% to be saved in funds for long-term investment or to bolster budget spending when sector revenue falls below expectations. Ghana can use petroleum revenues directed to the national budget as collateral. The rules were amended in July 2015, giving politicians more leeway to change both how revenues are distributed between spending and saving options, and providing greater flexibility in the setting of oil price assumptions when budgets are being created (see analysis).

Consumption

Ghana is experiencing changing patterns of energy usage in downstream markets, due to a combination of rising incomes, liberalised pricing and new infrastructure (see Utilities chapter). Long-term trends indicate a modernising energy sector, as the use of biomass has diminished as more people adopt modern fuels.

The amount of petroleum products used in Ghana climbed from 0.09 tonnes of oil equivalent (TOE) per capita in 2006 to 0.13 in 2013, according to statistics from the Energy Commission Ghana, a downstream regulator of end-user energy. In that same time period the consumption of biomass fell from 0.12 TOE per capita to 0.10.

Ghana has been a long-time user of hydroelectric power for its electricity sector – it derived 55% of domestic power from hydroelectric power, according to government data – however other renewable energy technologies are not yet a meaningful part of the mix (see Utilities chapter).

Total final energy consumed rose by 33% between 2006 and 2013, from 5177 kilotonnes of oil equivalent (KTOE) to 6886 KTOE. The government stopped setting prices for main consumer fuels as of June 16, 2015. Subsidies had been popular with consumers but were a drain on public resources, and were the target of both the IMF and private investors, who said that artificially low costs for end users were discouraging private capital from entering this segment (see analysis).

The IMF released a report in May 2015 pegging government spending worldwide on energy subsidies at $5.3trn, or 7% of global GDP, and projected spending on them at around the same level in 2015. “Subsidies are intended to protect consumers by keeping prices low, but they also come at a high cost,” the report states. Consequences include government spending making deficit reduction more difficult, encouraging inefficient energy consumption and lowering governments’ abilities to help their poor, as those on a low-income typically consume less energy per capita than those on higher incomes.

New infrastructure targeting domestic consumption has been rolled out, in part to take advantage of the country’s resource wealth. This includes the $900m Atuabo Gas Plant, which is connected to Jubilee by pipeline and has the capacity to process 150m cu feet of gas per day (scfd) for onshore use, mainly by the power sector.

Imports

The only current source of gas imports is the 678-km West African Gas Pipeline, which originates in Nigeria and terminates in Ghana. It was built by a consortium that included Chevron and government entities in each of the four countries it passes through, which also include Benin and Togo. Ghana is supposed to receive 100m scfd of Nigerian gas through the pipeline, but since its initial use in 2008 supply has consistently fallen below this level and was completely unavailable from August 28, 2012 to July 18, 2013 because the pipeline was accidentally severed off Togo.

Ghana currently has no import capacity for liquefied natural gas, but this could soon be an option thanks to private investors’ plans to use floating regasification terminals (see analysis).

The state also owns Tema Oil Refinery (TOR). However, it has faced challenges in producing at full capacity, with the government looking for potential strategic investors. According to Joseph Kwadwo, head of energy in the oil and gas unit of MOFEP, as of June 2015 Ghana was in negotiations with Saudi Aramco for that role.

Exploration

For now Ghana’s energy sector is purely an offshore play, as onshore exploration remains in the early stages and has not yet drawn investment outside of the government’s own efforts, which have been conducted by GNPC.

The country’s petroleum resources form part of larger geological formations common to the Gulf of Guinea, as well as South America’s eastern coastal and offshore zones. According to the International Energy Agency, one of these formations stretches from south-eastern Brazil to the Gulf of Guinea, and a second spreads from the northern half of Brazil’s waters to West Africa, ranging from Mauritania in the north to the Gulf of Guinea in the south. The latter formation is called the Equatorial Atlantic Transform Margin, and it is the geology that Kosmos has developed specific expertise in exploring: the company is also operating off Mauritania, for example.

Ghana may have more oil deeper down, under a layer of rock and salt that mirrors the geology of Brazil’s offshore properties. These are called “pre-salt”, and are believed to be identical, unlike deposits closer to the surface that have evolved distinct qualities. With Brazil’s success, exploration at the pre-salt level is expected off Africa for as long as oil prices make it commercially viable.

Basins

Ghana’s offshore waters are split into three basins. The Tano-Cape Three Points/ Western Basin is at the western edge of the area, and east of it are the Saltpond/Central Basin and the Accra-Keta/Eastern Basin, which straddles land and water. Most of the current activity is taking place on the west side, where Jubilee and the two fields next up for production are found. Onshore is the Voltaian Basin, a north-south strip of land on the country’s eastern edge. It has yet to attract private investment, and GNPC is undertaking early survey and exploration efforts. As of April 2014, according to GNPC, 127 wells had been drilled in the Tano-Cape Three Points Basin, 19 in Saltpond, 14 in Accra-Keta and one in the Voltaian.

Jubilee Production

Ghana’s only major field so far, Jubilee, holds recoverable reserves of 470m barrels of oil. The field also has 577bn cu feet (bcf) of gas, and according to the terms of the deal signed with production partners the first 200 bcf will be delivered at no charge to GNPC.

Jubilee’s oil is light in comparison to the main global benchmark, Brent crude oil, and as such sold at a small premium to it in 2014. The average price was $103.50 per barrel for Jubilee against $103.31 for Brent, according to figures from MOFEP.

From first oil in December 2010 to September 2014 a total of 115.3m barrels had been extracted, according to MOFEP, and the daily average was 101,976 barrels in 2014. The original output projection for the field when it was in development was 120,000 bpd. Daily production had reached 103,000 bpd by the end of the first quarter of 2015, according to Kosmos, and is forecast to average 100,000 bpd over the year. Mould estimates that Jubilee will be producing 130,000 bpd by the end of 2016. In addition, Tullow recently received approval for further drilling at Jubilee to offset potential drops in output from existing wells.

As of April 2015 around 400m scf of gas had been delivered, according to the Ghana National Gas Company (known as Ghana Gas). Gas had been re-injected into the reservoirs to maintain pressure, and then, as delays in providing required infrastructure were prolonged, flared – although Ghana currently has strict limitations in place regarding flaring. Deliveries to the Atuabo plant begun in November 2014, according to Ghana Gas.

Saltpond

Production at Saltpond, the country’s only other field, is in decline, having peaked in 2008 when annual output was 30.5 KTOE, according to GNPC. That slipped to 10.8 KTOE in 2011 and recovered to 15 in 2013. Production was at 95,093 barrels in 2014, down 9.5% from 105,040 the previous year. Since 2000 the field has been operated by the US-based Lushann International Energy Corporation in a joint venture with GNPC, with Saltpond Offshore Producing Company as the operator. Lushann has a 55% interest in the field and its infrastructure. In late 2014 GNPC announced that an initial $50m in investment would be required at Saltpond, and plans were under way to find a new investor.

TWENEBOA, ENYENRA & NTOMME (Ten) 

At the end of the first quarter of 2015 development was 55% complete in the TEN project, according to Kosmos. The government expects first oil in 2016, with daily production peaking at 76,000 bpd by 2018. First gas exports are seen coming in 2017, with a daily output reaching 30m scfd. Gas will be transported for processing through the infrastructure built for Jubilee. TEN is being developed by a consortium led by Tullow, and is thought to have reserves totalling 245m barrels, of which 216m are deemed recoverable. There is also potential for producing 85m scfd of gas.

Next Up

Ghana’s fourth producing field, after Jubilee, Saltpond and TEN, is a non-associated gas field that is also on the western side of Ghanaian territory, the Offshore Cape Three Points (OCTP) Integrated Oil and Gas Project. The scheme was announced in January 2015 and contains the Sankofa and Gye Nyame gas and oil fields, as well as three others. Of that group, three contain non-associated gas and the other two contain oil. The sum of reserves is 1.5tcf of gas and around 500m barrels of oil. The partners in developing it include Italy’s ENI, Vitol, Kosmos, Anadarko and PetroSA, South Africa’s national oil company.

According to Vitol, the gas to be extracted would be sufficient to power Ghana’s thermal electricity plants until 2036. In 2017 the project is expected to deliver enough gas to power 700 MW of electricity generation. First oil is expected in 2017, with production peaking at 80,000 bpd by 2019.

The development is taking place in waters between 600m and 1000m deep. Gas will not be processed onshore at the Atuabo facility but on a floating production storage and offloading vessel, and will afterward be sent through a pipeline to the Western Corridor Gas Pipeline. Processing capacity for the project will be 170m scfd, according to Tullow. Oil will be offloaded to tankers for export, according to Vitol’s project overview.

High Priority

The World Bank describes the development of the non-associated gas fields as a “top priority” for Ghana, given its overstretched electricity generation capacity, which the government is seeking to expand. The gas produced by the five fields will replace crude and fuel oil currently being burned to generate power, lowering costs, boosting efficiency and trimming emissions.

Fresh Fields

The government has also been investing in gas capture and transmission infrastructure. Progress on developing new fields will be particularly welcome given the recent drop in oil prices, which has caused a significant drawdown in capital spending for exploration.

Several more fields have seen exploration completed and are now at the appraisal stage, according to GNPC. They include the Mahogany, Akasa, Teak 1 and Teak 2 finds in the Western Cape Three Points block being explored by Kosmos.

In its first-quarter shareholder update for 2015 Kosmos declared Mahogany a commercial-scale deposit and said it planned to submit a plan of development later in 2015. It said it was in negotiations with the government on the other three. Another seven separate discoveries are in a block being explored by Hess called the Deep Water Tano/Cape Three Points Contract Area. This area has also been impacted by the border dispute with Côte d’Ivoire, slowing the process of evaluation. What is known, however, is that oil has been found on a commercial scale, and first oil could come as soon as 2020, according to GNPC.

Following the Jubilee discovery in 2007 there have been 23 additional ones according to GNPC, including light oil similar to that in Jubilee, heavy oil, condensate, and both associated and non-associated gas. The companies responsible include Tullow, Kosmos, ENI and Hess Corporation. There are now a total of 19 petroleum agreements across Ghana and its maritime zone, according to the Petroleum Commission, after a round of approvals in 2014. From these initial exploration arrangements three development plans have been approved thus far, with another two expected.

Exploration

Plans for a new regulatory regime have had an impact on exploration, which has also slowed as a result of current global conditions, namely the bear market for crude oil that began in the summer of 2014. Day rates for deep-water drilling rigs have fallen from around $800,000 to $350,000-400,000, according to GNPC. In the Tano-Cape Three Points Basin, UB Resources has asked for a renegotiation of terms, according to GNPC, which would require parliamentary approval, but no other explorers have done so yet. Kosmos expected to spend $500m on exploring in Ghana in 2015, according to its 2014 annual report. Tullow and Anadarko Petroleum have announced plans to spend $20bn over a decade.

Boundaries

One uncertainty for the Tano-Cape Three Points/Western Basin is a maritime boundary dispute with Côte d’Ivoire. The two countries agreed to settle it through international arbitration, by the International Tribunal for the Law of the Sea (ITLOS), with a ruling expected in 2017.

Several projects could be affected, including the TEN fields, which abut the border and are set to begin producing in 2016. In April 2015 the tribunal ruled against an appeal by Côte d’Ivoire to suspend activity in TEN, in what was seen as a significant win for Ghana and its investors, in particular given the country’s current fiscal challenges. The ruling “removes a threat to Ghana’s growth and revenue projections over the next two years,” according to credit ratings firm Moody’s. Ghana and Côte d’ Ivoire have handled boundary disputes in the past, including through a joint commission that settled the 640-km land border in 1989, but a maritime line was not set as part of that exercise.

Much exploration remains to be conducted in the disputed area, which could contain anywhere between 200m and 1.2bn barrels of oil in what Ghana believes are its part of the disputed area. The oilfields have highlighted the need to settle the line, and in 2009 both countries submitted evidence supporting their claims to the UN Commission on the Limits of the Continental Shelf. The two parties have continued to meet and discuss the issue outside of the ITLOS process too, most recently in May 2015. The two heads of state, Ghana’s John Mahama and Côte d’Ivoire’s Alassane Ouattara, met in Geneva and were moderated by former UN secretary-general Kofi Annan. A deal was agreed over the issue that had frozen new oil drilling in the disputed area. Details of the bilateral agreement have yet to be released.

Changing Structures

In mid-2015 the government was in the process of moving Ghana Gas under the umbrella of GNPC, which will henceforth act as a formal gas aggregator. That move, along with the changes at TOR, is emblematic of the evolving legal and regulatory regime in Ghana.

The government is looking to develop GNPC as an integrated national oil company, with capacity as an explorer and producer in addition to midstream and downstream operations. GNPC is the holder of the government’s stakes in individual fields, typically at a rate between 10% and 20%. At the production stage Ghana has shared in the profits through GNPC’s stakes, as well as a hybrid fiscal approach including taxes and royalties.

Petrol Patrol

In addition to GNPC and the upstream and downstream regulators – the Petroleum Commission and the Energy Commission (EC), respectively – several other agencies have oversight in the energy sector. The National Petroleum Authority is a downstream regulator that has historically regulated end-user prices, as well as being the licensing agency for bulk importers of fuels and local distributors of them. Deregulation has been a major feature in that area of the market (see analysis). The Ghana Oil Company is the government’s retailer of fuels to consumers and has the country’s largest network of filling stations.

Storage & Distribution

The Bulk Oil Storage and Transportation Company (BOST) was established in 1993 to own storage facilities and distribute petroleum products from them. In addition, the company is licensed by the EC to be the transmitter of natural gas via pipelines. That responsibility includes developing a national network and maintaining codes and standards. The pipeline network under its control stretches 370 km.

Check-Up

Ghanaian law mandates the minister to provide an annual update on the energy sector during the budget approval process, which occurs in the fourth quarter of the year, and that speech to Parliament and supporting documentation serve as a detailed annual check-up on the sector.

In his November 2014 budget statement to Parliament, Terkper said a transaction advisor would be appointed to advise it on whether TOR and BOST should be merged into GNPC’s corporate structure. Other relevant agencies include the Environmental Protection Agency, the Ghana Maritime Authority, the Ghana Immigration Service and the Ghana Standards Authority.

System Change

Currently the awarding of blocks for exploration, as defined by the extant law – now more than 30 years old – is the responsibility of the minister of energy and petroleum and is also subject to ratification by parliament.

However, the legislative body has also been given a draft of a new exploration-and-production law, to update the legal regime now that Ghana is a major producer and replace the current open-door policy with a system based on bidding rounds. As a result, the awarding of new hectarage is on hold, and the government has suspended data-room visits. The sector currently operates according to the Exploration and Production Law of 1984, as well as additional laws and regulations covering local content and other issues.

Local Content Requirements

The legal and regulatory regime for local content is contained in two laws and was applied from February 2014. The goal is 90% local participation in all aspects of the sector by 2020. “As a local company, without strong local content laws, it is very difficult to raise money as well as deal with high interest rates,” William Kwadwo Tewiah, the managing director of Zen Petroleum, told OBG.

The biggest change is the obligation of foreign investors to offer 5% equity in projects to a local private sector investor, on top of the equity stakes given to GNPC. “The local content legislation is admirable in its intent, but the number of skilled people in the country available for the various disciplines – like reservoir engineers – is quite limited. Developing the required pool may take time,” Riccardo Muttoni, Central and West Africa director at oilfield services company Expro, told OBG.

In addition to establishing bidding rounds, likely changes would include a 1% levy on procurement to support local training. “The biggest problem with local content is defining it. The guidelines should set feasible goals to render services for a project, while contributing to skill development through knowledge transfer,” Bunmi Omole, group general manager for Ghana, Côte d’Ivoire and remote operations at Schlumberger, told OBG.

The changes would also be likely to allow for signature bonuses, and to settle the question of which entity is the ultimate owner of Ghana’s resources. If it is the government, that would mean producers cannot book reserves on their balance sheets and use them as assets against which to borrow. That could curtail GNPC’s plans to use its own balance sheet to fund operations (see analysis). The law would also enhance the powers of the Petroleum Commission, the newly created upstream regulator, which under the current legal regime does not have the ability to fine licensees for failing to comply with rules and regulations.

Refining & Processing

Located at Tema, 25 km east of Accra, TOR is the country’s only refinery and has a nameplate capacity of 45,000 bpd. It was built in 1960 by ENI and is now owned by the Ministry of Energy and Petroleum after Ghana purchased it in 1977. Production from the refinery has been far below capacity, and at times completely halted in recent years.

The refinery is configured to process light and sweet blends of crude, and in the past has sourced them from nearby Nigeria. Press reports and parliamentary inquiries have highlighted two potential reasons for the lack of production: a lack of cash for importing crude because of fiscal troubles under the current government, or failure by past governments to perform regular maintenance. For example, in April 2015 a fire was cited as the reason for halting production.

Privatisation, concessioning and transferring control to GNPC have been floated as options to improve performance, but in early 2015 a plan was made public in which a joint venture with Saudi Arabia’s national oil company Saudi Aramco or PetroSaudi International would address TOR’s challenges. Further details of the plan were unclear as of June 2015, but mid-month a MOFEP official said at a seminar at the University of Ghana that discussions were in the final stage and that TOR’s capacity would be expanded to 60,000 bpd.

Gas

Atuabo Gas Plant, which is connected by pipeline to Jubilee, is situated near Takoradi on the western half of Ghana’s coastline. The plant plays a crucial role in leveraging domestic natural gas to jump start electricity generation. The $900m facility was built using part of a $3bn loan from the China Development Bank and was hoped to have been in place earlier. Delays included complications in receiving tranches of the loan. The facility has a capacity to process up to 150m scfd of gas, and officials at Ghana Gas told OBG that it should be sufficient to handle domestic gas processing needs for at least a decade. Most of capacity is already spoken for in the form of gas from Jubilee, which is so far producing below what was expected. Atuabo will also process gas from TEN, but not that from OCTP’s Sankofa and Gye Nyame fields. “Given Ghana’s reliance on gas for power generation, gas distribution is a priority for the government,” Walter Perez, managing director of West Africa Gas Pipeline Company, told OBG.

Outlook

Ghana’s entry into the ranks of oil-exporting countries has largely been smooth, as demonstrated by Tullow’s rapid turnaround at Jubilee and the successful exploration campaigns that will bring TEN and OCTP oil and gas to market. However, the young sector has also experienced its share of challenges and execution risks, headlined by the delays in completing the Atuabo plant and the boundary dispute with Côte d’Ivoire.

Yet as the government streamlines its legal and regulatory regimes, and finds the right corporate and parastatal structures for its own functions in the market, further clarity and progress is on the cards. The local content regime took force in 2014, for example, and GNPC is preparing to become an upstream explorer in the Voltaian Basin. These government initiatives can help build capacity at a time when the energy sector can be relied on to provide the government with jumps in revenue, to the point where in the medium to long term Ghana can return to its original goal of using petroleum revenue to hasten economic development overall.

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The Report: Ghana 2016

Energy & Utilities chapter from The Report: Ghana 2016

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