It’s a gas: Natural gas has the potential to power the country

Harnessing domestic natural gas to power the electrical grid will be one of the most immediate economic benefits of the recent hydrocarbons finds. The government is racing to construct the infrastructure to transport the gas produced at the Jubilee field, turn it into feedstock, and supply Takoradi’s thermal power plants. However, the project has been fraught with delays. Further, proven gas reserves are unlikely to cover growing energy demands. But when Ghana does tap the gas, by 2014, the economy should get a much-needed boost from a more stable power supply. “Gas has potential to be more of an economic driver than petroleum. Gas will create more jobs, economic growth and will benefit the people,” the director of Sage Petroleum, Emmanuel Egyei-Mensah, told OBG.

INFRASTRUCTURE CHALLENGE: The state-owned Ghana National Gas Company (Ghana Gas) was founded in 2011 and given an aggressive timeline to build the infrastructure needed to utilise the gas produced at Ghana’s offshore oil fields. To fund the project, the state used nearly $1bn of a $3bn concessionary loan from the China Development Bank (CBD) and contracted the work to China’s oil company Sinopec. The initial deadline, December of 2012, was always ambitious, but problems of payment have delayed construction. The CDB pays Sinopec directly, but the disbursement requires paperwork processed through Ghana Gas, the Ministry of Energy and Petroleum, and the Ministry of Finance. With bottlenecks between the latter and the CDB, Sinopec and its sub-contractors have halted construction at times through out the project, but is now working again. The massive infrastructure project, the biggest since Akosumbo dam, includes a 45-km shallow water pipeline to transport gas from Jubilee to Atuabo, a gas processing plant, and an 111-km overland pipeline to transport the fuel to Takoradi’s plants. The 111-km overland pipeline required relocating populations from areas within the 35-km buffer zone of the pipes, and compensating these people for land and crops. Under the purview of Sinopec, an Italian firm is building the offshore pipeline and a Chinese firm the overland one. “The government projects the Ghana Gas facility will be finished by the end of 2013, but some think a more likely timeline is 2014. Based on its progress, this may be a stretch,” Ken Keag, the vice-president and country manager for Kosmos Energy, told OBG.

THE POWER PROBLEM: The government has been clear that the priority for domestic gas is to supply its power plants, a move that has received the backing of the World Bank, which stated, “Power generation is the best use of gas in Ghana.” Lack of a secure fuel supply has caused managed off-loading and resulted in a power crisis since the pipeline bringing gas from Nigeria broke down in August 2012 (it was back on-line as of August 2013). Without natural gas, the Volta River Authority (VRA), which is responsible for generation, cannot run the gas-powered Sunon-Asogli power plant, and installed capacity drops below demand. The VRA must also run flex-fuel plants on cost-intensive heavy fuels, wracking up unsustainable expenses. The resulting managed off-loading and power shortages are the top constraint to business growth, according to the Association of Ghana Industry (see Utilities chapter).

IMMEDIATE EASING: Capturing Jubilee’s production of 100m standard cu feet per day (mscfd) of gas will immediately ease the strained power system. The gasfired Sunon-Asogli plant will come on-line, adding 200 MW to the grid. Further, the plant’s operators can continue a planned expansion to add 360 MW in capacity. Takoradi’s flex-fuel plants, currently running on light crude oil, will be able to switch partly to gas, reducing the VRA’s oil import bill. In the longer term, Ghana’s leaders have touted a gas-led industrialisation programme to promote petrochemicals production. The Ghana Gas overland pipeline travels through the western region of the country and is expected to bring economic opportunity to the area. However, in light of the expected increase of consumption in the medium-term, reserves are not likely to supply enough gas to meet energy demand and also support a chemicals sector.

SUPPLY AND DEMAND: Ghana’s power plants required 300 mscfd to run in 2012, and current supply at Jubilee is 100 mscfd. Even if Nigeria delivered the 120 mscfd it is contracted to supply Ghana, the power plants would face a fuel shortfall requiring substitute light crude oil. Of course, domestic gas production is forecast to increase with continued development and exploration at Ghana’s offshore fields. TEN is forecast to add 85 mscfd by 2020, and Sankofa is expected to add 160 mscfd by 2018. By 2020, when the three confirmed developments are in production, Ghana will have access to 400-500 mscfd, according to the World Bank. However, by 2018, Ghana’s power plants will require more than 800 mscfd, according to the Energy Commission. When industrial demand is included, Ghana would need to produce 1000 mscfd by 2018 to meet demand.

INVESTMENT REALITY: Given the potentially tight gas market, private investors have been slow to put money into power plants or downstream facilities. The VRA is trying to attract private investors as independent power providers (IPPs) to front the capital for power plants that can be operated privately for a set period of time. “At present, concerns about the assured availability of gas for power plants are a major barrier for potential IPPs,” stated the World Bank energy report.

One avenue being explored is for operators in energy-intensive industries to become IPPs. Investors interested in fertiliser production, for example, have performed feasibility studies, but none has yet committed, according to the Ghana Investment Promotion Centre. Without clear guarantees of gas supply, Ghana’s goal of homegrown fertiliser sector to support local agribusiness appears to be a long way off.

AN ALTERNATIVE SOLUTION: To provide a long-term solution to the nation’s fuel shortfall, public agencies and private industries have encouraged the import of liquefied natural gas (LNG). “The only cost-effective supply option to quench the shortfall is by LNG import,” stated the Energy Commission’s “2013 Energy Outlook”. Building the infrastructure to support LNG imports is capital-intensive and time-consuming. A permanent LNG re-gasification plant with a 200-mscfd capacity would require three to four years to get on-line from the time the financing is available, according to the Energy Commission. These funds are not currently available from government already stretched coffers. A floating re-gasification plant may offer a cheaper and faster option. The Energy Commission predicted such a facility would take just 18 months to two years to build once the funds are made available.

In June 2013 General Electric signed a memorandum of understanding with the Ministry of Energy and Petroleum, to coordinate the financing and construction of a 1000-MW power park, suggesting the multinational firm was feeling optimistic about future fuel supply. Access to domestic gas will give a boost to power capacity and stabilise struggling industries. In the longer term, however, Ghana will need to expand supply beyond the identified offshore reserves to meet demand. The debates on investment in LNG imports give investors a clear sign that gas-led industrialisation is achievable.