New oil and gas projects to increase energy production in Ghana

Large quantities of commercially viable oil were first discovered in Ghana in 2007. With production starting in 2011, the wealth and potential of these resources has helped the country leverage a spike in headline GDP growth and inbound investment. However, in recent years the economy has suffered alongside other oil-producing nations as global prices have declined in tandem with reduced demand, particularly from historically large markets like China. Still, with continued exploration, the first domestic gas flow, new projects coming on-line, the resolution of a multi-year border dispute with Côte d’Ivoire and hope for a modest uptick in global prices, the country has its eyes on increased production for local use and export to jumpstart the economy.

Recent History

Domestic oil exploration dates back to 1896, with the first onshore discovery in the Tano Basin. In the late 1960s exploration shifted offshore, and in 1978 the first commercial offshore production occurred in the Saltpond field. Higher levels of production output saw Ghana pass its first petroleum laws in 1983-84, establishing Ghana National Petroleum Corporation (GNPC), and providing a regulatory framework to expedite exploration and production (E&P). In 2004 the government first began selling licences to international companies, and three years later London-headquartered Tullow Oil and US-based Kosmos Energy discovered the first commercially viable oil deposits in the West Cape Three Points Block.

The area, now named the Jubilee field, supplied its first oil in 2010. Additional reserves and gas resources have since been discovered, notably in the Tweneboa, Enyenra and Ntomme (TEN) field, which was identified in 2009 and started producing oil in 2016. Ongoing offshore and onshore exploration has continued alongside infrastructure development for local processing and transport. Moving from west to east, Ghana’s three offshore fields are: the Tano Cape Three Points/ Western Basin, which is the site with the highest production and exploration; the Saltpond/Central Basin; and the Accra-Keta/Eastern Basin. The country’s sole onshore field, Voltaian Basin, is the least developed, but GNPC has recently undertaken exploratory activities there.

Industry Indicators

Overall, 2016 proved yet another challenging year for the oil and gas sector around the world. As noted by consultancy PwC, global energy companies reduced capital expenditures by around 40% between 2014 and 2016, including letting go of some 400,000 workers, and cancelling or postponing major projects industry-wide. Global oil prices were still suppressed throughout 2016, with Brent crude reaching a high of just over $50 per barrel; though an increase from 2015, this is still less than half the highs of 2011, when the spot price of Brent averaged $111.26 per barrel. As expected, the effect on Ghana’s industry was in line with global trends. According to the 2016 annual report from the Public Interest and Accountability Committee (PIAC), an oversight organisation that monitors the collection and management of Ghana’s petroleum revenues, crude oil from the Jubilee field was sold at a premium of $46.13 per barrel, while the average Brent price was $44.01, but production was below target in 2016 and into 2017. According to the PIAC, annual crude oil output fell by 13.7%, dropping from 37.4m barrels in 2015 to 32.3m in 2016, due to a 34-day maintenance shutdown of the Jubilee field.

Production of natural gas fell by 27% over the same period, from 52.45bn standard cu feet (scf) to 38.42bn scf. In 2016 this translated into petroleum receipts of $247.18m, 29% lower than the expected $348.42m outlined in the federal budget, and down 38% from petroleum revenues of $396.17m in 2015. However, there were signs of improvement in the first quarter of 2017. Oil revenues reached $103m, a year-on-year increase of 66% from $62m, with 2m barrels sold in the period, compared to 1.9m in 2016. Consumption trends have bolstered growth, as domestic output drove down imports even as demand for crude oil rose. According to the 2016 energy outlook published by Ghana’s Energy Commission (EC), crude oil imported for domestic consumption dropped from 1.3m tonnes in 2013, to 693,000 tonnes in 2014 and 310,000 tonnes in 2015.

There has also been a rise in the supply of diesel, which is attributed to the increased need for generators to protect against load shedding and to fuel new thermal projects until gas is made available. Demand for diesel grew from 1.7m tonnes in 2014 to 1.9m tonnes in 2015. In contrast, there was a dramatic fall in kerosene supply from 27,800 tonnes in 2013 to 6900 tonnes in 2015 as consumers shifted to using liquefied petroleum gas for cooking, and solar for powering small electric devices, such as lights and batteries.

Oversight & Regulation

The sector involves numerous public and private players that fall under the management of the newly consolidated Ministry of Energy (MoE), led by Boakye Kyeremateng Agyarko. Prior to January 2017 sector oversight had been split into two dedicated ministries: the Ministry of Energy and Power, and the Ministry of Petroleum. Established in 2010, the Petroleum Commission (PC) regulates and coordinates policies related to the upstream petroleum industry, involving any activities related to exploration and extraction. GNPC leads the exploration, development and production of resources in partnership with local and international companies, while the National Petroleum Authority (NPA) serves as the downstream regulator, issuing distribution and marketing licences to operators, and monitoring market dynamics and pricing.

Separate from oil, Ghana National Gas Company (Ghana Gas) builds, owns and operates state infrastructure for gathering, processing, transporting and marketing natural gas. Ghana’s Environmental Protection Agency (EPA) oversees the environmental aspects of oil and gas production, issuing permits and ensuring that industry actors comply with environmental standards.

Upstream Landscape

Ghana’s entrance into the upstream oil industry led to a surge in foreign-backed exploration investment. Even with its modest amount of reserves, Ghana has key advantages that are attractive for foreign companies in the upstream sector.

Indeed, according to a GNPC presentation at the Oil Council’s 2016 Africa Energy Assembly, as of September 2015, 474 companies were registered with the PC for exploration and extraction activities of the upstream sector, with 321 local firms, 107 international players and 46 joint ventures. Among the larger international firms are Tullow Oil, US company Hess and South African national oil company PetroSA. “The increased presence of international oil companies in Ghana’s oil and gas industry should have a positive impact on local capacity building in the medium term,” Joe K Mensah, managing director of Kosmos Energy Ghana, told OBG.

The Petroleum E&P Law was updated in mid-2016 to improve oversight of the upstream sector, attract investors and promote expansion. Transparency is a key focal point, and new regulations require the minister of energy to publish invitations to tender or enter negotiations through multiple public communication systems, and oblige the PC to publish a petroleum register of licences and agreements in the public domain. Updates for the contractual framework between the government, GNPC and investors is expected to improve the business environment and increase the government’s fiscal benefits, with an open and competitive bidding system and transparent contract disclosure.

Local Content

Local content regulations are in place in the upstream segment via the Petroleum Commission Act No. 821 of 2011, which created the PC and charged it with promoting the use of local staff and materials in the segment. The Petroleum Local Content and Local Participation Regulations Law No. 2204 of 2011 lays out terms of preference for domestic companies participating in petroleum activities, requiring at least 5% equity be given to a Ghanaian company on top of the shares held by GNPC in all licence awards. The government hopes this legislation will help reach a target level of 90% local participation in the oil sector by 2020. In 2016 GNPC estimated the upstream petroleum industry had created 7000 jobs, of which 80% were filled by locals. The MoE reported that in the first half of 2016 Ghanaian service providers were awarded $221m in contracts, compared with $128m in 2015. CAPE THREE POINTS/WESTERN BASIN: Current oil and gas production comes primarily from the Jubilee field and the TEN field, both located in the Tano Cape Three Points/Western Basin. The Jubilee field, located 63 km offshore, spans 108 sq km. With water depths of 900-1700 metres, Jubilee has 628m barrels of reserves that could be produced at a cost of $24.90 per barrel, according to GNPC’s May 2016 estimates.

Operated by Tullow Oil in cooperation with GNPC, Kosmos, Anadarko and PetroSA, first production at the field began in late 2010. The set-up consists of 26 wells hooked to the Kwame Nkrumah floating production, storage and offloading (FPSO) vessel, with a processing capacity of 120,000 barrels of crude oil and 160m scf of natural gas per day. In May 2017 cumulative production at the FPSO surpassed 200m barrels. In a January 2017 operational update, Tullow Oil forecast 2017 oil production from the Jubilee field would average 68,500 barrels per day (bpd) given the anticipated 12-week shutdown associated with the next phase of rehabilitation. Discussions of the Greater Jubilee Full Field Development Plan are ongoing. The plan, which incorporates the Mahogany and Teak discoveries in the West Cape Three Points Block, is intended to expand field production and commercial output, as Jubilee has almost reached maximum capacity. The statement addressed this as well, noting that the joint-venture partners hope to commence additional drilling in 2018 pending government approval.

Located 30 km west of the Jubilee field, the TEN field, also operated by Tullow and its Jubilee partners, was approved for development in May 2013. TEN is a cluster of three hydrocarbons accumulations with water depths ranging from 1000 to 2000 metres. According to a 2016 MoE presentation, total oil reserves are estimated at 240m barrels, with associated and non-associated gas reserves of 360bn scf. A 2017 report by a US think tank, the Brookings Institution, projected that Ghana’s economy would grow at a much higher rate once the TEN field ramps up production, as it has the potential to increase output by nearly 50% once operations reach full capacity. This second major production field came on-stream in August 2016 and contributed 16%, or 5.3m barrels, to annual production that year. Oil production from TEN is forecast to reach 50,000 bpd, as further drilling is expected in the wake of the resolution of a maritime border dispute with Côte d’Ivoire, which had led to a moratorium on new drilling. Tullow has announced that initial results from the existing 11 wells indicate that reserve estimates for Ntomme and Enyenra should be in line with expectations.

Integrated Production

The biggest project in the West Cape Three Points Block is the Integrated Oil and Gas Development Project, led by Italian international energy company Eni, Geneva-headquartered Vitol Group and GNPC. The project, made up of the Sankofa Main, Sankofa East and Gye-Nyame fields, has an estimated 40bn cu metres of non-associated gas, while the total estimated reserves at Sankofa Field are 1.1trn cu metres of non-associated gas, and 500m barrels of oil. First oil came ahead of schedule in May 2017, with a production of up to 85,000 bpd. First gas will be produced in 2018, with the production peak for oil and gas expected to reach 80,000 barrels of oil equivalent per day in 2019. The development of the Sankofa and Gye-Nyame fields aims to further advance Ghana’s offshore natural gas potential. The World Bank – which is supporting the gas part of the project with $700m backed by the International Bank for Reconstruction and Development and the International Development Association – anticipates that the Sankofa Gas Project will create $2.3bn in revenues. Gas from the project is expected to fuel up to 1000 MW of domestic power generation, or about 40% of Ghana’s current installed capacity. Once the project is operational, the World Bank estimates that the country will be able to reduce its oil imports by 12m barrels per year, and reduce CO emissions by 8m tonnes over five years. Although the Côte d’Ivoire border dispute has been resolved, there may be another on the horizon with Togo. However, local press reported in mid-2017 that President Nana Akufo-Addo and Togolese authorities are in discussions to avoid another maritime boundary dispute. ACCRA-KETA/EASTERN BASIN: The Accra-Keta/ Eastern Basin covers 34,000 sq km, of which 1900 sq km are onshore. Since early 2015 exploration has continued 100 km from the coast, with water depths of 2500-3500 metres. In April 2016 Swiss African Oil Company, a subsidiary of Swiss African Petroleum AG, and local company PET Volta Investments were awarded an E&P licence by GNPC for the Keta Delta Block, constituting Ghana’s first onshore oil exploration in recent history.

Onshore

Although the 12,000-sq-km Saltpond/ Central Basin was the site of Ghana’s first commercial oil field, low volume has led GNPC to announce decommissioning plans. However, the 100,000-sq-km Voltaian Basin, which covers 40% of Ghana’s landmass, and stretches into Togo and Benin, offers new exploration prospects. Historical surveys identified potential deposits in the northern part of the basin, and GNPC is continuing its five-year exploration activities to gauge the area’s potential. According to the PIAC, the Voltaian Basin Project is the first onshore oil exploration project in Ghana managed by GNPC, which noted in a 2016 presentation that there is over 40,000 sq km of offshore area available and many joint-venture opportunities.

Downstream Landscape

Being the regulator, the NPA oversees downstream activities, with the exception of natural gas, which is under the remit of the EC. With a capacity of 45,000 bpd, the state-owned Tema Oil Refinery (TOR) serves as Ghana’s only oil refinery point, while the Bulk Oil Storage and Transport Company (BOST) stores and transports oil and distributes gas from depots. From that point, the products are marketed and traded or distributed by local and international oil-marketing companies (OMCs), bulk delivery companies (BDCs) and oil-trading companies (OTCs). According to the NPA, there were 95 OMCs, 34 BDCs and 13 OTCs operating in Ghana as of October 2017. The new government has taken an aggressive approach to raising competitiveness in downstream activities. “Before the new administration came into office, they already had a policy on the energy sector – especially regarding downstream,” Vincent Richter, head of external affairs and customer service at Vivo Energy, told OBG. “One of the first steps they took was to reduce taxes, removing an excise duty of around 3% and cutting the special petroleum tax from 17.5% to 15%. This is a step in the right direction, because as much as petroleum products are price inelastic, consumers are equally price sensitive.”

Status Update

Ghana’s downstream petroleum segment has entered its second year as a liberalised system after a June 2015 decision to deregulate prices. The move allows OMCs and BDCs to set and advertise their prices in two-week windows after receiving NPA approval. Prior to this, prices for all petroleum products were set by the NPA. The effects to date appear to be mixed. On the one hand, liberalisation has reduced public spending on fuels, as subsidies had been a regular feature of government-set prices. On the other hand, according to some OMCs, the deregulation has started something of a price war, a challenge given the instability of the cedi, and price-sensitive consumers.

On top of the currency volatility, downstream players face a number of operational challenges. Per a statement by the Association of OMCs (AOMC), since 2016 untaxed petroleum products have increasingly been smuggled into Ghana, bypassing government duties and depriving the state of revenues needed to finance industry infrastructure projects. This situation has seen downstream oil industry sales decline by 15%. The AOMC estimates that in 2016 the government lost GHS815m ($195.1m) in unpaid taxes due to the dip in sales by OMCs, with a volume drop of 19% in February 2017 alone. The organisation estimates possible losses of 4000 jobs per month. Other challenges have also arisen from the regulating of downstream competition. “Three years ago the NPA mandated that there should be 500 metres between stations on the same side of the road, but it has not been properly implemented,” Henry Akwaboah, managing director for Engen Ghana, the local affiliate of South Africa-based Engen Petroleum, told OBG. “There needs to be a unit that focuses on competition and regulation of market entrants.”

Refinery & Transport Facilities

Domestic oil and gas fields are served by two ports: Tema Port, 30 km east of Accra, and Takoradi Port, 220 km to the west. Both ports are currently undergoing expansion to boost traffic volumes, particularly in anticipation of the latest projects set to come on-line by end-2018. While Tema is the country’s primary port, Takoradi’s proximity to the oil and gas fields is expected to increase its traffic in coming years. TOR was originally intended to refine total crude oil with the exception of the consignments meant for power generation; however, Ghana’s annual petroleum requirement exceeded TOR’s capacity by over 50% in 2016. In addition, the January 2017 furnace explosion in the crude distillation unit has limited processing by 37%, to 28,000 bpd as of October 2017. However, it is not all bad news for the refinery as low global oil prices are now benefitting its bottom line with lower crude prices feeding into higher profit margins on the refined product. In March 2017 press reports confirmed that TOR will complete studies in 2018 for a second, 200,000-bpd plant in Tema.

Storage

As for storage, in 2016 BOST held over 106,979 tonnes of petrol and 98,400 tonnes of premium super in stock in December 2016, allowing the country to avoid emergency imports of petroleum products. As part of long-term efforts to make Ghana a centre for petroleum product distribution across the region, BOST began supplying petroleum products to the landlocked countries of Burkina Faso, Niger and Mali from the Bolgatanga Depot, and to Benin and Nigeria by sea. BOST also conducted the transfer of 60m litres of petrol and gasoil through its pipeline to the Bolgatanga Depot for export in the first half of 2016.

Energy Sector Debts

An ongoing challenge in 2017 is the burden of energy sector debt, which has worsened due to low global prices and the depreciation of the cedi. According to the Bank of Ghana (BoG), total debt was estimated at $2.4bn as of January 2017, translating to more than 5% of overall GDP.

The Volta River Authority (VRA) owes banks $782m after borrowing for capital-intensive construction and rehabilitation efforts, as well as the costly import of crude oil and gas to power thermal plants. The VRA and TOR also collectively owe fuel suppliers $440m, and have incurred debts owed to the Grid Corporation of Odisha, the Northern Electricity Distribution Company, Ghana Gas, BOST and GNPC, among other power producers. This problem has trickled throughout the system; the government owed BDCs about $1.78bn at the end of 2016, which BDCs, in turn, owe to banks.

In 2015 the Parliament passed the Energy Sector Levies Act No. 899, placing a tax on fuels to cover the debts accrued by TOR and the VRA. An amendment to the act, passed in April 2017, included tax reductions to provide relief to consumers, but exposed banks are eager for the government to facilitate increased payments from the public. While the IMF forecast Ghana’s debt-to-GDP ratio would reach 71.1% in 2017, in September the government issued a $2.3bn local currency bond in an attempt to clear sector debts. The first batch of issued bonds is set to raise GHS6bn ($1.4m). However, the IMF cautioned in June 2017 that “Ghana remains at high risk of debt distress. Continued fiscal consolidation would be required to bring public sector debt on a declining trajectory”.

Environmental Report

Ghana’s EPA has not yet applied its Akoben environmental ratings system to the oil industry, though the method has been used in mining and other industrial sectors since 2011. The voluntary data-collection system allows the EPA to validate environmental compliance and rate companies accordingly in a public report. Comfort Aniagyei, chief finance and administration officer at GNPC, announced at the 2017 Annual Ghana Summit that GNPC has plans for meeting environmental responsibility goals. Likewise, the MoE reiterated its dedication to environmental protection principles by standardising and regulating “all agreements, contracts or memoranda for the exploration, development and production of oil and gas” for all related initiatives. “Going forward, the authorities are looking at checking standards of imported petroleum products,” Akwaboah told OBG. “For diesel, they want to reduce the sulphur content significantly, which is currently between 1500 and 2000 parts per million (ppm). The way forward is to reduce sulphur content to 50 ppm, which will be closer to European standards and better for the environment. There are already some vehicles that have to run on these standards.”

Outlook

The likelihood of oil prices recovering to 2011 levels in the near term is unlikely; Brent spot prices were forecast to average $53 per barrel in 2017 and $56 per barrel in 2018. However, with increased production, revenue will likely rise. In March 2017 Ken Ofori-Atta, the minister of finance, announced in his budget statement that he expected Ghana to earn $515m from petroleum in 2017, against $247.18m in 2016. Accra remains an attractive base of operations for international oil and gas companies given its affordability, security and accessibility, particularly compared to neighbouring Nigeria. Jun Yamabayashi, deputy general manager at the Ghana Representative Office of Japanese corporate group Mitsui, told OBG, “We chose Accra as our West African headquarters for safety reasons; it is productive to be based in a city where security is not a problem.” The sector is still comparatively young, and open for investment all along the value chain.