How Ghana is becoming a regional energy centre

International oil and gas prices dropped dramatically in early 2020 when countries around the world, including Ghana, enacted measures to curb the spread of Covid-19. While reduced activity saw demand for fuel drop, this was not the case for all industries. “Contrary to consumer patterns during the pandemic, essential industries such as agriculture did not see reduced fuel consumption,” Fareed Yakubu, CEO of Santol Energy, told OBG.

In 2021 prices rebounded amid the gradual return of economic activity. Rising oil prices continued into early 2022, to sit at $89.16 for Brent crude on February 1, engendered in part by geopolitical tensions involving some of the world’s largest producers. The turbulent context poses challenges for Ghana’s hydrocarbons sector, which is still in its infancy. Having said that, if it can leverage the ample opportunities that remain in its offshore blocks, and in the onshore mid-stream and downstream segments, Ghana stands to attract significant investment.

The government has set out to transform Ghana into a regional refining centre, with feasibility studies on the Petroleum Centre Infrastructure Master Plan scheduled for 2022. While new discoveries in 2021 highlight the country’s hydrocarbons potential, Ghana is also gearing up to deliver more sustainable energy over the long term, in accordance with goals outlined at the 2021 UN Climate Change Conference.

Structure & Oversight

All of Ghana’s oil and gas resources, onshore or offshore within its 225,000-sq-km exclusive economic zone, are the property of the state per the Petroleum ( Exploration and Production) Act of 2016. The Ministry of Energy (MoE) is the government body responsible for negotiating petroleum agreements (PAs) for exploration and production (E&P) with both national and international oil companies (IOCs). The national oil company, Ghana National Petroleum Corporation (GNPC), is a required partner in any such agreement and must hold a minimum 15% initial participating interest. The GNPC can also undertake its own E&P activity and in 2014 launched the GNPC E&P Company (EXPLORCO) to this end.

The Petroleum Commission (PC) is the regulator of the upstream segment, and is charged with monitoring activity, developing plans and programmes, and issuing permits. The National Petroleum Authority (NPA) acts as regulator for the mid- and downstream segments. The NPA has a midstream department that handles operations and pricing in natural gas, while the Ghana Natural Gas Company (GNGC), also known as Ghana Gas, processes and transports this resource. Ghana Gas supplies much of the country’s liquefied petroleum gas (LPG), a widely used energy source in homes and businesses. The Ghana Cylinder Manufacturing Company, which is under the remit of the MoE, manufactures LPG cylinders and other associated products for the ministry.

The final sector agency under the MoE is the Tema Oil Refinery, currently Ghana’s only such facility and located some 24 km from Accra. Established in 1963, the refinery purchases and refines crude oil and has a capacity of 45,000 barrels per stream day, while also possessing a storage capacity of 2m tonnes.

Two other key state authorities in the sector are the Environmental Protection Agency and the Ghana Revenue Authority. The former is in charge of ensuring environmental impact assessments are undertaken for projects and that environmental regulations are adhered to over their lifespan. The latter assesses and collects taxes, royalties and fees on entities operating in the sector. Royalties are calculated according to the gross volume of petrol produced and the rate specified in the project’s PA.

Fields & Operators

As of early February 2022 there were 17 active PAs, including for three offshore basins: the Accra-Keta/Eastern Basin, the Saltpond/Central Basin and the Tano-Cape Three Points/Western Basin. Within these basins are three petroleum-producing fields, all in the offshore Tano area: Jubilee, which first began producing in 2010; Tweneboa-Eyenra-Ntomme (TEN), which produced first oil in 2016; and Sankofa and Gye Nyame (SGN), which began production in 2017. All three fields now produce both oil and natural gas, either associated or non-associated. Most of the gas produced is used in domestic power production, although a portion is used for gas reinjection at some wells.

The Jubilee Field is the result of a unitisation agreement between two operators, Tullow Oil and Kosmos Energy, that discovered oil in their adjoining deepwater Tano-Cape Three Points contract areas in 2007 and 2008. Tullow was appointed the operator of Jubilee in 2008. Tullow and Kosmos also operate in TEN. Tullow, Kosmos and ENI are the three main IOCs that hold producing concessions in Ghana. Other international and domestic companies active in the country include Vitol, Andarko Petroleum, AGM Petroleum and Aker Energy. Major service companies, meanwhile, include Schlumberger, Halliburton, Technip, Rigworld and MODEC.

At the domestic retail end of the supply chain, oil marketing companies include Total, Shell’s Vivo, Engen, Puma, Top Oil, Santol Energy and PetroSankofa. Ghana is a member of ECOWAS, which has established harmonised specifications for automotive fuels. In order to give domestic producers time to meet these mandates, in January 2022 the NPA waived low sulphur content requirements for local products for three years, ending December 31, 2024, while maintaining them for imported fuel.

Elsewhere downstream, in 2018 the Tema LNG Terminal Company began construction on the first liquefied natural gas (LNG) terminal in West Africa, located 12 km off the coast of Tema, near Prampram. The facility – which consists of a floating re-gasification unit and a modified LNG carrier – is a joint effort between GNPC and Quantum Power Ghana Gas. The facility will have the capacity to store, re-gassify and deliver up to 3.4m tonnes of LNG per year after an initial capacity of 1.75m tonnes. The fuel will be used for electricity generation when the plant begins commercial operations in the second quarter of 2022.

Production

While onshore oil and gas seepage saw E&P activity begin in Ghana back in the late 19th century, it was not until the end of the 1970s that commercial production commenced. This was then largely halted in the 1980s, with the exception of the Saltpond field. Exploration continued, however, and shifted towards deepwater offshore blocks. A series of discoveries in 2007 launched the modern industry with the offshore Jubilee Field.

A decade later, after Saltpond had ceased production, the TEN and SGN fields joined Jubilee to produce a total 58.7m barrels of oil in 2017. By 2019 that figure rose to 71.4m barrels before dipping slightly to 66.9m in 2020. For the January-September 2021 period, total output stood at 41.5m barrels, along with 77.2bn standard cu feet (scf) of gas. Individually, Jubilee produced 19.9m barrels of oil, SGN 12.4m and TEN 9.5m, while the respective gas outputs were 26.6bn scf, 48.1bn scf and 2.5bn scf.

Trade & Contribution to GDP

Most of the higher-quality oil produced by these three fields is exported, while Ghana imports crude for power production and other purposes. In 2017 some 57m barrels were exported – around 97% of total production – with the remainder used for electricity generation or sent to Tema Oil Refinery. In 2020 official NPA and PC figures show that exports stood at 67.5m barrels, exceeding production. The amount of oil retained in-country for electricity generation has fallen in recent years, as power generation has shifted towards natural gas (see analysis).

Indeed, natural gas production has enabled Ghana to reduce imports from Nigeria along the West Africa Gas Pipeline (WAGP). Up to 2013, for example, 100% of Ghana’s natural gas usage was imported, while in 2020 the figure was around 25%. However, overall gas usage has increased during those years, as a result of economic growth and overcapacity in the electricity generation sector. In 2020, 24.4trn British thermal units (Btu) of gas were imported, compared to 11.6trn Btu in 2013. In 2021 the Ghanaian government began talks with N-Gas, the Nigerian WAGP supplier, to renegotiate existing take-or-pay agreements to reduce its debt burden.

The sector has become a major contributor to the economy with the help of foreign direct investment (FDI). The government announced in 2014 that it expected some $20bn to be invested in the sector over the following five years, while figures from the Ghana Statistical Service show that oil and gas contributed GHS13.3bn ($2.3bn) to GDP at constant 2013 prices in 2020. This was more than Ghana’s traditionally most valuable commodity, gold, which contributed GHS7.8bn ($1.3bn). These figures were, however, down on 2019 – reflecting the impact of the pandemic. The sector’s contribution to GDP in 2019 was GHS13.9bn ($2.4bn), about 4% higher than in 2020. A look at oil and gas prices over the period explains the drop in performance: in 2020 the average annual price of crude oil was $43.16 per barrel – 32.8% lower than in 2019 and the lowest since 2004.

This significant decline in prices impacted IOCs around the world. With prices falling over a sustained period, E&P companies made radical cuts in their project plans, concentrating on low-cost and lowrisk projects. This meant that a number of oil and gas majors involved in deepwater E&P either pulled out or suspended their activities.

The first half of 2021 saw oil and gas prices continue to drop, with the sector’s contribution to GDP falling by a further 13.4%. However, prices began to recover after mid-year, with industry benchmark Brent crude spot prices averaging $71 per barrel for the whole of 2021. By early February 2022 barrel prices had topped $90. According to the government’s 2022 budget, crude oil exports rose from a projected $2.9bn in 2020 to $3.5bn in 2021, although oil and gas imports rose too, from $1.9bn to $2.5bn, as the cost and demand for these also recovered.

The government forecasts that crude oil output will be 59.9m barrels in 2022, equivalent to 163,044 barrels a day, while gas output has been estimated at 96.5trn scf. Based on the government’s prediction of an average $61.23 per barrel for the year, the oil and gas sector looks likely to be a major source of GDP and export earnings for that year.

Upstream Developments

The impact of the pandemic, coupled with the long-term global shift towards greener energy, brought a number of changes in the upstream sector in 2021. For example, ExxonMobil exited the market and Tullow expanded operations, while other outfits sought new contracts or reassessed their participation. At the same time, the government looked to buy back unused oil licences and entered into the renegotiation of PAs with four companies as it sought to tackle overcapacity issues in power generation (see analysis).

ExxonMobil had an 80% interest in the deepwater Cape Three Points block since 2018, but exited before the end of its six-year exploration period, in May 2021. The company told international media the following month that it had pulled out because it was prioritising other near-term goals with lower costs. In October 2021 Occidental announced it had sold its interests in both the Jubilee and TEN fields, held by its subsidiary Andarko Offshore Holding, to GNPC and Kosmos Energy for a combined total of $750m. In November 2021 Tullow exercised its right of pre-emption in relation to this deal – a move that would consequently increase its equity interests in the Jubilee and TEN fields to 38.9% and 54.8%, respectively. This came on the back of Tullow’s announcement in April 2021 of plans to move ahead with drilling additional wells in the Jubilee and TEN fields over the course of 2022 (see analysis).

Elsewhere, Norwegian oil company Aker Energy has been engaged in the development of the Pecan oilfield, which has the potential to become Ghana’s fourth producing region. It was discovered in 2012 by Hess Ghana, an oil, gas and energy solutions company acquired by Aker Energy in 2018. Aker Energy estimated the field’s potential at 334m barrels of oil and was due to make a major investment in the field when the Covid-19 pandemic began to unfold. The company postponed the decision, revising its plans to cut costs and announcing that it would submit a new proposal by the end of 2021.

Meanwhile, ENI and its upstream partner, Vitol, have been engaged in a dispute with Ghanaian E&P firm Springfield over the unitisation of neighbouring discoveries in the SGN field. The government ordered them to reach a solution in 2020, but to no avail. June 2021 saw the High Court ratchet up pressure, mandating that 30% of ENI and Vitol’s oil revenue from the field – an estimated $40m per month – be held in an escrow account until the dispute is resolved.

The year 2021 also saw Parliament grant GNPC approval to buy back, on behalf of the government, a 37% stake in the deepwater Tano-Cape Three Points block, held by Aker; and a 70% stake in the adjacent south deepwater Tano block, held by AGM Petroleum. Neither block is yet in development, but the government is anxious to move this forward. The authorities also see it as an opportunity to develop GNPC’s own production capacity by having the national oil company operate the blocks.

Mid- & Downstream

The Tema Oil Refinery had some challenging years recently due to maintenance and supply issues, and the facility remained offline as of January 2022. Further refineries have long been planned, with discussions on Tema II starting in 2018 and Tema III more recently, in 2021. China Shandong International Ghana is the main E&P company for the latter project, while Sentuo Petrochemical will operate the facility. The Tema III refinery is expected to witness an estimated capital expenditure of $589.8m over the 2021-25 period and have a capacity of 40m barrels per day (bpd) once it comes on-line in 2025.

Elsewhere, in October 2020 Parliament approved the establishment of the Petroleum Hub Development Corporation (PHDC), which will oversee the development of a $60bn, four-refinery project in Bonyere, Western Region. Each refinery will have a capacity of 150,000 bpd with two oil jetties, storage and two petrochemical plants also on site. With the support of the NPA, the project’s goal is to transform Ghana into a downstream centre for sub-Saharan Africa by 2030. In 2021 the interim report on the strategic environmental assessment was completed, with 2022 set to see the undertaking of feasibility studies for the Petroleum Centre Infrastructure Master Plan. A major push to attract investors to the project is under way, with the launch of the first phase – which will require $12bn in investment – and the PHDC’s first board meeting taking place in September 2021. The project is expected to generate $1.6bn in export tax revenue once fully operational.

Consumption

Boosting local refining capacity should also help lower petrol prices for Ghanaians. In 2015 the government introduced a deregulation policy for the fuel retail sector, ending government subsidies on petrol and allowing the market to set prices. With imports accounting for much of Ghana’s consumption of refined oil, however, this has exposed consumers to fluctuations in global prices, as well as depreciation in Ghana’s currency. As of October 2021 pump prices stood at about GHS6.60 ($1.13) per litre.

Amid the pandemic, protests against price hikes led the NPA to remove the Price Stabilisation and Recovery mechanism – a levy on sales designed to pay for subsidies on pre-mix fuel and residual fuel oil – in October 2021. Prices fell slightly thereafter, but with global prices continuing to rise, January 2022 saw an average of around GHS6.70 ($1.15) per litre.

In terms of gas, Ghana’s LPG for Development programme has two modules – household and commercial – with both set to expand in 2022. The government plans to distribute 120,000 stoves that use LPG cylinders across 60 districts for the first module, while the second will see schools and some commercial vehicles fitted with LPG. As a result of plans such as this – and a wider surge in demand as the economy and population grow – LPG usage is rising, creating a need to increase supply. In late January 2022 the GNGC announced that it had more than tripled its capacity since 2016, from 90m standard cu metres per day (scmpd) to 300m scmpd. The company expects this to expand further in the near future, to 450m scmpd. Much of the gas goes to the GNGC’s Atuabo processing plant, which currently supplies 50% of the country’s LPG cylinders. Between 2015 and 2021 the GNGC’s operations have helped reduce LPG imports by an estimated $233m.

Renewables

With growing demand for energy and the country’s dependence on fossil fuels, the government is eager to tap renewable sources to diversify the energy mix. Consumers, for their part, have become increasingly more conscious of sustainable power since the pandemic began. “Now that more people are working from home, they are thinking about their energy consumption and where their energy comes from,” Richard Yeboah, managing director of Green Energy Ghana, told OBG. The 2011 Renewable Energy Act set the goal of generating 10% of electricity from renewables by 2020; however, in 2018 solar and wind accounted for just 0.03% of the energy mix. The Ghana Renewable Energy Master Plan, launched in 2019, moved this target to 2030 (see analysis). According to the International Renewable Energy Agency, Ghana has the potential to increase the share of renewables in its energy mix to 77% by 2040 if the right policies are put in place.

Outlook

Amid the uncertainty of global events and their impact on international oil and gas prices, at the start of 2022 Ghana looked set to embark on a year of cautious progress. While higher prices may impact macroeconomic performance and the pockets of Ghanaians, the longer prices continue to rise, the more confident IOCs will become with their investment decisions, making the likelihood of further deepwater projects and new E&P activities more promising. Infrastructure developments in the downstream segment, such as the petroleum centre and projects aimed at bringing domestic refining back on-line, should also help reaffirm Ghana’s role as one of Africa’s brightest oil and gas prospects.

At the same time, tackling climate change and transitioning to cleaner fuels and more sustainable practices is a global priority. This requires investment in human resources, and Ghana is aware of the need to train more of its talent while developing local support services and the range of their activities.