The country’s oil industry experts have warned that the agreement allowing for the importation of liquefied natural gas (LNG) poses a direct risk to the investment plans of international oil companies (IOCs) interested in the upstream oil and gas activities.
With the current volume of gas from the country’s fields and Nigeria, adding LNG imports holds the potential to discourage investors and send existing investors from further investment in the country’s upstream sector.
This follows the emergence of Shell LNG, which has entered into a take-or-pay agreement with the national oil company – Ghana National Petroleum Corporation (GNPC) when the country’s domestic gas and supplies from Nigeria remain sufficient.
Speaking to the Daily Graphic, the Executive Director of the Africa Centre for Energy Policy (ACEP), Mr. Benjamin Boakye said there was no single binding contract between GNPC and any potential consumer of the LNG to warrant the corporation taking the risks to contract a supplier for the commodity.
ACEP said by July this year, a minimum of 75-million standard cubic feet daily (mmscfd) would be delivered from the Floating Storage Regasification Unit (FSRU). “This translates to about $300 million if the Brent price, which is the benchmark for the LNG, does not appreciate.”
According to Mr. Boakye, beyond the financial risks associated with the LNG, the strategy is also a significant disincentive for investment in domestic oil and gas exploration, and constrains the need to accelerate the development of existing gas discoveries.
He said it further burdens the gas sector with multiple take-or-pay commitments from Nigeria Gas, Offshore Cape Three Point (OCTP) and Shell LNG.
“Already, as a result of a controversial clause in the Gas Sales Agreement for OCTP gas, Ghana is obliged to pay penalties for not prioritizing OCTP gas if it can be proven that the country could have done so,” he said.
Mr. Boakye said as at August 2020, this penalty stood at about $40-million, saying “This presents a clear case of ‘double jeopardy’ for the country where the country has to pay the penalty as well as redeem the take-or-pay liabilities.”
On the part of the IOCs relative to the LNG issues, the Managing Director of Tullow Ghana Ltd, Mr. Wissam Al-Monthiry acknowledged the need for the government to consolidate its fuel sources to enhance power generation. He however expressed worry at the turn of events.
“However, the reality is when we look at the gas market, and the number of others independent in the gas market – LNG will present a significant oversupply of gas when it comes to the gas market,” he said.
Mr. Al-Monthiry said looking at what is available today in terms of gas from Jubilee, Tweneboa, Enyenra and Ntomme (TEN), and increasing reliability of supply, and the supply from Sankofa and Nigeria, “We see a market that is sufficiently supplied.”
Aside from the sufficient supply, Mr. Al-Monthiry said, “It is supplied at relatively cost effective and most importantly, it is a domestic gas.”
Jubilee at present, he said, provides as effectively at a zero cost as a result of the initial free foundation gas of about 200-billion cubic feet (BCF) and that pricing even after the free gas would still be extremely cheaper compared to other opportunities – “domestically and internationally.”
“The LNG market is a global one and not regional. Any gas commentator will tell you global gas market prices and LNG prices have surged within the last few years – particularly the last six-months,” he said.
LNG trading in Asia at present, he said, was ten times the price of average gas from Nigeria or “even much more than what we will ever think about from TEN and Jubilee for the future.”
“Therefore when we look at the economics and the benefits for the government and Ghanaians, we think there is the need to take a critical look at reliability, and cost effectiveness of the gas,” he said.
The critical thing to look at as a company or any other investor in the oil and gas sector, he said, would be its investment – ability and certainty before investing a large amount of money to produce the associated gas or gas from the natural gas fields.
On the LNG imports, Mr. Al-Monthiry said Tullow Ghana would work together with the government to find a middle ground, saying, “LNG is a threat and something we are concerned about and we are sure we will find an appropriate middle ground.”
“We will work hard on that, we see it as a collaborative effort, what we are saying is not just based on price, but a long term benefit of oil and the fact is the last thing anyone wants is stranded resources,” he said.
Tullow oil, he said, is committed to working with the government of Ghana to ensure that there are no stranded resources, and “One way to do that is the benefit of low cost gas and additional oil investment and enhanced production.”
The country has three offshore oil and gas basins – the Keta-Accra, Saltpond and the Tano basins as well as onshore Voltaian basin which is yet to be exploited.
Presently, out of the three offshore basins – only Tano is active with three independent oil fields – Jubilee, TEN and Sankofa, with production platforms currently moored.
The country’s oilfields have both associated and natural gas fields with an onshore gas processing plant at Atuabo and the onshore reception center at Sanzule all in the Ellembelle District of the Western Region.