Among the most important challenges for the government are the development of natural gas infrastructure and the stewardship of the resource. Indeed, the associated gas in the Jubilee Field is considered a more important find for the development of the country over the coming decade than the oil itself. Kofi-Agyeman Boakye, executive director of Emos Consultancy, a local energy advisory firm, told OBG, “The government has set a clear policy. First gas for electricity generation and then the use of gas to change the structure of the economy and drive the country forward.”

GETTING STARTED: However, while gas has been placed at the heart of the government’s economic plans, it has been slow to start bringing it ashore and to the power plants and industries that will use it. The Jubilee Field produces 1.2m standard cu feet (mmscf) of gas for every 1000 barrels of oil, according to Tullow Oil, while the country has discovered offshore gas reserves in excess of 5trn cu feet since 2007, according to Wood Mackenzie. Jubilee gas was flared in the first months of development, but has been reinjected or used to power operators’ equipment ever since. Current demand for natural gas as feedstock for thermal power plants is 180-200 mmscf per day, a figure that is likely to increase to 280-300 mmscf by 2015.

The November 2011 the Ghana National Gas Company (GNGC) announced that funds had been secured for a $700m gas processing plant at Domunli in the Western Region. The contract for the 150-mmscf-per-day plant was awarded to Sinopec International Petroleum Service, as part of the terms for the $3bn China Development Bank (CDB) loan facility, some of which will be used to finance the country’s gas infrastructure. In February 2012, parliament authorised $850m for the government and the CDB to finance the Western Corridor Gas Infrastructure Development Project.

UNCERTAINTIES: The deal is not without its detractors. Opposition members of parliament from the New Patriotic Party, as well as local think tanks, have expressed reservations about the lack of transparency in financing the deal, the cost and terms of repayment in crude oil, and the length of the repayment of the loan, which, at 15 years, contravenes the terms of the Petroleum Revenue Management Act (which stipulates that loans against the country’s crude production cannot exceed 10 years). Nonetheless, there is also a sense of relief that the infrastructure, which will include the development of a 120-km pipeline to the Aboadze Thermal Power Plant near Takoradi and a further line to the mining centre of Prestea, is now in the process of being laid. This is particularly important given the Jubilee operators’ comments that it could potentially be harmful to the long-term health of the Jubilee Field to continue reinjecting gas into the reservoir after December 2012.

As Boakye said, “The question now is when will we finish the pipeline and whether Sinopec’s timeline will be consistent with the Tullow reinjection strategy.” The Ministry of Energy (MoE) is confident that the infrastructure will be in place by the end of 2012, according to Edem Wordi, an advisor in the MoE’s Petroleum Directorate. This will not only be a relief for the operators of the field, concerned about damaging the reservoir, but also for the government, which will be keen to monetise the gas reserves and address the problems of gas shortages in the country.

SHORT-TERM SHORTFALLS: Indeed, the slow development of gas infrastructure has created short-term challenges for the government, particularly as the country has become reliant on the erratic supply of Nigerian gas through the West African Gas Pipeline (WAGP). There is significant frustration within Ghana that Nigerian gas is proving an unreliable stop-gap measure. Indeed, many of the plans for electricity generation in Ghana were predicated on Nigerian gas before the discovery of the Jubilee Field. “Everyone is focused on Ghanaian gas because all the plans so far have been developed on the WAGP gas flowing,” Boakye said.

The 680-km pipeline that transports gas from Nigeria, through Benin and Togo, was seen as a means to bolster feedstock for thermal power generation and industrial development when it began serving Ghana in December 2008. However, security of supply has been a significant issue. In February 2012, the VRA, the state-owned electricity generator, announced that load shedding would be introduced, with a 100-MW reduction in power supply during peak periods, because Nigeria was only supplying 40 mmscf per day, well below its contractual obligations of 100 mmscf per day. While this to be a short-term issue, supply from the WAGP has generally been unreliable. The average volume in 2011 reached 94-96 mmscf per day, according to the Ghana Energy Commission, and is forecast to fall to 65-70 mmscf per day in 2012.

USING CRUDE: This has left Ghana in a difficult position and dependent on crude oil for power generation. “If Nigerian gas comes today at 300 mmscf per day, we can get all our proposed plants up and running, which can provide an additional 2000 MW,” Boakye said. “That is why the Nigerian issue is frustrating. They’re currently flaring 50 mmscf per day, but they’re not willing to sign a take-or-pay contract with us.” He also said the problem is largely political rather than technical.

“The recent disruptions in Nigerian gas were unfortunate, but that points to the need to develop more indigenous gas sources and expand supply availability within the sub-region,” Charles Darku, chief executive of electricity transmission company Gridco, told OBG.

Locally produced gas is, therefore, essential. According to Wood Mackenzie, a global energy and mining consultancy group, with the current offshore finds under appraisal, Ghana could be producing as much as 650 mmscf per day by 2020, giving Accra many options to monetise the reserves. The government has made clear that the first priority is gas for power generation. According to Harriette Amissah-Arthur, executive partner at Arthur Energy Advisors, “The thought is that most of the next-generation capacity is going to come from gas.”

The precise details of how this will be achieved are still unclear. Whether the government seeks to sell the feedstock at a discount to rapidly build independent power plant capacity or to sell at market price and generate substantial revenue is still a matter of discussion. Wordi told OBG, “It will be done by the gas pricing committee. It is part of the gas master plan that is still being worked on, but there is no indication yet whether it will be sold below the price of the WAGP gas.”

COSTS & BENEFITS: Amissah-Arthur, however, believes that the pricing for this feedstock to new generating plants is likely to be at cost parity with the WAGP import price from Nigeria. “Indications are that the difference between the cost of production and the selling price will go into a development fund,” said Amissah-Arthur. “If they were to sell the gas at cost plus a small margin, they would have to develop an effective mechanism for using the revenue for targeting support to the critical areas of need.” If the government does sell gas at the same price as Nigerian import costs, it will be generating significant income.

In 2011, the WAGP delivery price, including the transit tariff and the gas price, which is indexed to the light crude oil price, was $6.79 per mmscf for standard customers, according to the Energy Commission. In 2012, it is expected to increase to $8.15-9.16 per mmscf.

The move towards gas for generation purposes should also benefit end-users. For instance, a 30% or greater reduction in electricity prices. Kweku Awotwi, the CEO of the VRA told a local publication, Ghana Business and Finance, that the crude oil price accounted for 80% of the electricity tariff in January 2011.

FURTHER IMPACTS: Gas is also likely to have a significant impact beyond the utilities sector. The government is keen to use the feedstock to develop industry, and the prospect of future access to gas is already attracting foreign investors. In 2010, for example, Indian firm Rashtriya Chemicals and Fertilisers signed a memorandum of understanding with the Ghanaian government for the construction of a $1.1bn fertiliser plant in the Shama Industrial Area in the Western Region. The plant, subject to agreements on pricing and quantity of gas, is expected to be operational by 2016 and it is anticipated that further agreements of this nature will likely be announced in the next few years.