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Ghana is attempting to stabilise economy amid low oil prices

Ghana is seeking to boost investment in its oil and gas industry, as misjudged government spending, infrastructure delays and low prices dull the optimistic mood

Ghana’s economy has not lived up to the hopes that were triggered by first oil from the country’s giant Jubilee field back in 2010. Revenues were much lower than expected, and this scuppered government plans that were dependent on oil prices remaining high. GDP growth was running at around 8% in 2010 and over 14% in 2011, but is forecast to be below 4% this year.

Last year, the government used an oil price of $99/barrel to calculate its 2015 budget. By the time the budget was proposed, the price was $80/b and by mid-August 2015, Brent crude was trading below $50/b. As Ghana’s finance minister Seth Terkper told a briefing at think tank Chatham House in London in early August, “We know that the price of crude will never be $99”.

Terkper said legislation was being changed to enable the government to adjust budget plans more rapidly to take account of changing circumstances, such as falling oil revenues.

In the meantime, the country has been working with the IMF and World Bank to shore up the economy in the short term. In April, the IMF approved a three-year $918mn financial assistance deal for Ghana to help create jobs and stabilise the economy. Then, in late July, the World Bank targeted the energy sector directly by signing off on $700m in investment guarantees for the Sankofa gas project.

Jubilee production hiccup

Ghana’s existing oil and gas production comes mainly from the Jubilee field, operated by Tullow Oil, with partners Kosmos, Anadarko, Petro SA and GNPC. Oil production from the field was ramped up in early August, following a month-long slowdown caused by technical problems with the gas compressor on the Kwame Nkrumah FPSO. The company said in July that it would review its production forecasts for the full year in light of the incident.

Jubilee has been producing oil since November 2010 and achieved average gross production of 105,000 barrels/day in the first half of 2015, but the July problems cut oil production to 65,000 b/d for the duration. Gas supply to the coast, which had to be halted, restarted on 3 August and had reached around 100m ft3/d by mid-August. The problem caused the temporary closure of the Chinese-built Atuabo gas facility in western Ghana, which opened last year after a series of delays. It supplies power plants in the region.

Tullow, some of whose operations elsewhere in the world have suffered setbacks recently, will hope that its future development plans in Ghana progress more smoothly. The company is developing a Greater Jubilee plan, incorporating the nearby finds of Mahogany, Teak and Akasa into the project, which it expects to put to the Ghanaian government before the end of the year.

Tullow is also developing the Tweneboa-Enyenra-Ntomme (TEN) field, whose development plan was approved in mid-2013. Around two-thirds of the $5bn development is now in place, with Tullow predicting first oil in mid-2016, using an 80,000 b/d FPSO.

The company’s plans had risked being scuppered by the project’s location on the disputed Ghana-Ivory Coast border. An international maritime tribunal ruled in April that the TEN development could go ahead, but that Ghana must restrict new exploration, while the border dispute was being resolved.

World Bank backing for Sankofa

Another big project on the horizon is the five-field Offshore Cape Three Point (OCTP) development, of which the World Bank-backed Sankofa gas project is part.

OCTP is being developed by Italy’s Eni and Dutch-based Vitol Group in conjunction with the Ghana National Petroleum Corporation (GNPC) and has some 1.5 trillion ft³ of gas in place and around 500m barrels of oil, according to Vitol. The total cost of OCTP could run to around $7bn.

The Sankofa project, 60 km off the coast of Ghana’s Western Region and due to start producing gas in early 2018, will be able to supply enough to produce around 1 gigawatt of power. That would add around 40% to the country’s current generating capacity, which is unable to meet peak demand. This leads to blackouts and the widespread use of expensive imported oil to fuel back-up generators. The World Bank estimates power produced by the project could displace oil imports of around 12m b/y.

Legislation makes slow progress

The extent to which Ghana can develop open up further oil and gas resources at a time of low oil prices may hinge on whether the country can build confidence in the oil and gas sector’s investment and operational framework.

The sector has come along way since the pre-production days of 2009-10, when fears of heavy state intervention were sparked by government opposition to Kosmos’ proposed sale of a stake in Jubilee to ExxonMobil – a deal that ended up being called off. While the country has yet to solve its domestic energy shortfall, and has suffered by over-estimating its hydrocarbons revenues, the country can at least claim to have had success in becoming an established producer that can work with IOCs.

However, a proposed overhaul of existing legislation governing the sector still leaves room for concern for investors, according to some of those involved in the consultation process.

Ghana established a Petroleum Commission in 2011 to oversee the revamp of legislation designed for the pre-production era, when the sector’s main concerns were trading and refining. Since then, the progress of a new petroleum sector bill has been held up by a change in government and struggled to make its way through Ghana’s fiercely competitive parliament.

The latest draft of the bill is now being considered by the parliament, offering the prospect of competitive tendering for oil and gas licences, the establishment of a public petroleum register, the creation of a fiscal regime for the sector, and the establishment of local content requirements for and environmental management regulations.

The New York-based Natural Resource Governance Institute (NRGI), which participated in the Ghanaian parliament’s consultation process, has praised the general direction and intentions of the bill, but has drawn attention to potential weaknesses.

“Generally the law is fairly comprehensive and coherent, so it’s not bad structurally, but there are some transparency and other issues that are missing that we think can strengthen it,”NRGI legal analyst Nicola Woodroffe told Petroleum Economist.

NRGI draws attention to a number of areas it regards as shortcomings, noting that ministerial discretion may undermine provisions for competitive bidding; the law includes only limited transparency requirements; the bill does not require disclosure of beneficial ownership; and that it does not clearly define GNPC’s role.

On GNPC, the institute says that, in view of the substantial revenues retained by the GNPC, it is crucial that the corporation’s transparency and accountability requirements are strengthened to ensure effective management of those revenues.

“Some clear rules and guidelines are needed on what revenues GNPC retains, how they are used, and how GNPC reports the use of its revenues and on its operations generally, so that it doesn’t become a dark area in the petroleum regime, where nobody knows what’s going on,” says Woodroffe.

This call comes at a time when Nigeria’s new president Muhammadu Buhari has said he will plans to completely overhaul the structure of the Nigerian National Petroleum Corporation in an effort to make that organisation’s processing of oil revenues more transparent (see report on Nigeria).

Potential investors will be hoping that Ghana’s petroleum sector bill fares better than Nigeria’s version, which has been stuck in the parliamentary approvals and redrafting process for even longer. But there is, as yet, little indication of when Ghana’s bill can be expected to make it into law.

A major problem that has hit efforts to pass key oil sector laws – and indeed major legislation of all types – in Ghana, is the relatively short four-year election cycle and the fact elections routinely result in a change of party in power. So, a substantial chunk of the cycle is spent preparing for elections or establishing a fresh government.

IMF chief executive Christine Lagarde told a press briefing recently that fiscal adjustments involved in its loan agreement with Ghana were frontloaded to take place in 2015 to avoid the country having to make too many major decisions in 2016, when the next general election is due. This suggests there will not be a petroleum sector law for some time yet.

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