Low oil prices have had a significant impact on producers. According to a 2015 study by consultancy Wood Mackenzie, following the price drop, well over $200bn in spending on oil and gas projects around the world has been deferred, and roughly 250,000 industry employees globally have lost their jobs. This has been magnified in commodity-dependent emerging markets across Africa. Gabon reduced its 2016 budget in response to low oil income and has faced cash flow challenges, while Algeria has run a current account deficit for the first time in 15 years. In the first half of 2016 Nigeria, the largest oil producer in Africa, cut its oil production by one-fifth and removed fuel subsidies, increasing consumer costs.
The ramifications on industry have been just as noticeable. International oil companies are postponing or pulling out of planned projects. For example, Shell Petroleum Development Company of Nigeria announced it is postponing construction of the Bonga South West project in the country. In December 2015 Baker Hughes, an oilfield services company operating across Ghana, said there were two-thirds fewer gas rigs in the region compared to 2014.
Feeling The Effects
While Ghana’s hydrocarbons output is much smaller – whether in absolute terms as compared to Algeria and Nigeria, or in relative terms compared to Gabon – it has nonetheless not escaped the effects of the drop. Energy exports comprise the second-largest source of export revenues in the country, making up the commodity trifecta along with cocoa and gold. However, according to the Public Interest and Accountability Committee (PIAC) annual report for 2015, Ghana’s petroleum receipts for the year totalled $396.2m, roughly 32% below the revised projected revenue of $1.24bn and around 60% lower than Ghana’s 2014 revenue of $978m. The government is now projecting oil revenue could comprise as little as 0.8% of GDP by 2018. Five years after the first oil shipments in 2011, the country has been forced to look to the IMF for an emergency $1bn loan. Meanwhile the cedi was the worst performer in Africa in 2015, plunging 58% against the US dollar between 2011 and 2015. Spending increased as oil revenues were pouring in, but the oil price drop was followed by a fall in prices for gold and cocoa, both major exports in Ghana. According to July 2015 report by Bloomberg, since 2007 public debt has almost doubled to reach 68% of GDP. The drop in income has prompted the country to diversify its revenues, and the government passed the Energy Sector Levy Law in December 2015, The bill introduced taxes that increased prices for a litre of petrol, diesel and liquefied petroleum gas by 33%, 40% and 22%, respectively.
In an interview with Accra-based Citi News radio station, Francis Sallah, the deputy general secretary of the General Transport, Petroleum and Chemical Workers’ Union, said that 300 of its workers had been laid off due to the drop in oil prices – part of a global trend that has seen oil service companies lay off thousands of workers. John Challenger, CEO of Challenger, Gray & Christmas, a global consultancy group, told the media, “The pace of downsizing in the energy sector ebbed in the second half of 2015, but the latest activity is evidence the industry is far from concluding its cost-cutting initiatives. With oil prices expected to stay low for the foreseeable future, the potential for continued layoffs remains elevated.”
Ready & Waiting
Oil prices have recovered fro a low of $26 per barrel in early 2016, with most estimates putting prices at $70-80 per barrel by 2018. As two new fields are set to come on-line and a number of companies securing blocks prepared to begin exploration, Ghana will be well situated when prices do recover. Ghana’s GDP growth is expected to jump from 3.9% in 2015 to 7.5% in 2018, partially as a result of a more reliable supply of energy and increased production. However, if global oil prices do not continue to rebound, this level of growth is not guaranteed.