NEW KID ON THE BLOCK

Ghana 2016 | ENERGY & MINING | REVIEW: ENERGY

Ghana's nascent hydrocarbons industry offers up a wealth of opportunity if it can secure the necessary care and attention.

Ghana is relatively new to the oil and gas scene, with reserves of oil first realized at the Jubilee Field by Kosmos in 2007. Though Ghana already had a field, discovered in 1970 by the Signal-Amoco Consortium, production has been sporadic, and in September 2015 information from the Ghana National Petroleum Company (GNPC) indicated that the field had been shut down.

Kosmos' discovery, however, created a wave of interest. Jubilee commenced commercial production in 2010, a world record turn around of less than 36 months. The discovery was a driving force for interest from other oil companies to explore the upper Cretaceous region in the Gulf of Guinea such as Benin, Liberia, and Togo.
The industry is still widely described as being in a nascent stage, with its future largely dependent on external investments. With low oil prices, and the challenge of Ghana's reserves being located deep offshore, it is unlikely that exploration will be in the interest of investors in the short-term future.
Since discovery, however, Ghana has been quick to transform, commencing commercial production, attracting large investments from foreign players, and developing a sturdy legislative framework. The country has seen a rapid increase in its production capacity, with the oil and gas industry's contribution to GDP growing from 6.2% in 2011 to 7.7% in 2013. Oil exports rose quickly, too, from 13,000bpd in 2011 to 33,000bpd in 2013, and in 2014 oil exports generated about $979 million in revenue. Although Ghana hasn't yet reached its target initial targets, Alex Mould, head of the GNPC, expects the national oil firm to pump 190,000bpd by the end of 2016.

MARKET STRUCTURE

Due to the large capital requirements, unsurprisingly the oil and gas sector in Ghana is largely dominated by private players. The GNPC plays a role, but Tullow Oil, a British company, holds the largest percentage of the market, as it is the primary operator of the Jubilee field. The company witnessed revenue increase from $958.5 million to $1.245 billion between 2012 and 2013. Not far behind it is American Kosmos Energy Ltd, which discovered oil initially after licenses were sold for offshore oil production and exploration by the Ghanaian government in 2004. Kosmos plan to invest approximately $1.5 billion in Ghana's oil and gas sector between 2014 and 2017. It is followed by Anadarko Petroleum Corp, which were partners on the Jubilee field, which achieved a production milestone of 100 million barrels of cumulative oil production in the second quarter of 2014. It is also a partner on the Tweneboa, Enyenra, and Ntomme fields, also known as the TEN projects. First oil is anticipated in the third quarter of 2016.

LEGISLATION

The Petroleum Commission was established in 2012 as the industry regulator and interface between government and the industry. The GNPC is Ghana's national oil company, responsible for independent exploration activities or partnering with foreign companies for the exploration and production of petroleum in Ghana. Ghana's oil royalty is set at 12.5%, gas royalty at 7.5%, and the GNPC carried interest is 10%, with a further corporate income tax of 35%. Discoveries in Ghana are taxed and exploration and production (E&P) rights are based on a 30-year production sharing contract, with the contractor bearing all costs and risks. This was until the Eni Sankofa gas project, where the risk is being carried by the GNPC.

However, there are amendments expected to come to the Petroleum Revenue Management Act. These amendments allow for a revision of the benchmark revenue price and output and the amendments are expected to be developed throughout 2016 and submitted to parliament at the end of the year.

JUBILEE FIELD

For the first three quarters of 2015, production from the field fell 1.3% to 27.7 million barrels. The decline was largely due to technical challenges aboard the FPSO, but production figures were back to an average of 101,358bpd by March 2016. Gas has also been produced from the field, at a total 37,845bcf, with 15,312bcf exported and the remainder re-injected to maintain reservoir pressure.

TWENBOA-ENYERNRA-NTOMME FIELD

The TEN discoveries were made in March 2009 and development commenced in 2013. Tullow is the primary operator of the fields and owns half of the GBP3.5 billion project, with Kosmos Energy, Anadarko Petroleum, and Petro SA as well as the GNPC holding shares. First oil is expected in the last quarter of 2016, with first associated and non-associated gas exports scheduled for 12 and 24 months later, respectively. It is expected that the fields will commence production at a rate of 27,000bpd, rising to a 76,000bpd at plateau. As of September 2015, the overall project was 74% complete and on target for production.

SANKOFA-GYE NYAME PROJECT

This project was Eni's discovery and activities commenced in 2015 and are expected to reach first oil in the third quarter of 2017 and first gas in the second quarter of 2018. The field is estimated to hold 116 million barrels of oil and 1,110bcf of gas. In the first half of 2015 major contracts were awarded and progress was made of key gas commercialization agreements with a gas sales agreement signed between the partners, GNPC, and the government of Ghana.

The discovery has fallen in line with the government's ambitions to increase gas capture and investment in transmission infrastructure to replace crude and fuel oil, which is currently being burned to generate power.
Some protests have been made over Eni gas sales agreements, whereby the GNPC is beholden to buy the gas back from the field at $9.8/MMBtu, which is above world standards, a figure that usually fall between $5 and 7/MMBtu. It is also higher than the price of gas sold to Ghana from Nigeria, which stands at $8.3/MMBtu and more expensive than Ghana's own Atuabo Gas price of $8.8/MMBtu. Some have claimed that it undermines the ambitions for Ghana to be a regional petrochemical hub. This agreement also compels GNPC to buy up to 90% of Eni produced gas at a higher negotiated price of $9.8/MMBtu for 20 years.

DRILLING RIGHTS

The planned developments at TEN received a shock when Ivory Coast requested that Ghana suspend all oil exploration and exploitation on the TEN project over a maritime border dispute. However, in April 2015 the Special Chamber of the International Tribunal of the Law of the Seas (ITLOS) in Hamburg rejected Ivory Coast's request to halt production and development on the TEN project continues on all 10 already-drilled wells. The current agreement is that production can continue at TEN's initial 10 development wells, which were drilled before the ITLOS Provisional Measures ruling. This has consequences on expected production levels, as the wells that have already been drilled are not able to produce as much as they were expected to. Given the moratorium on new drilling, this would mean that the field will produce below projected levels until a final ruling is given in late 2017.

GAS

In 2013 Ghana commenced production of the Atuabo gas processing plant in an attempt to monetize the gas produced from offshore fields. A $900 million facility was built using a $3 billion loan from the China Development Bank. The plant was designed to process up to 150 million scfd of gas, sufficient to handle domestic demand for the next decade. This plant is currently connected via pipeline to Jubilee, which is Ghana's major field and holds a recoverable reserve of 577 cubic feet of gas.

The Atuabo plant will also be processing gas from the TEN field, but none of the gas from the Sankofa field, which is being developed by Eni and Vitol and is expected to reach production in 2017. The Sankofa fields hold approximately 1.5 tcf of gas, enough to feed Ghana's thermal plants for more than 20 years. The development will be connected to a leased FPSO vessel. The contract for this vessel was awarded to Tinson Holdings back in January 2015. After being processed, the gas will be transported via pipeline to onshore gas-receiving facilities in the western region of Ghana. The project will add up to a 1,000MW generation capacity, allowing the country to cut oil imports by around 12 million bpy.

In April 2015, the Ghana National Gas Company Ltd completed the commissioning phase of the Western Corridor Gas Infrastructure Project, and entered commercial operations. Over the course of 2015, 15,789.81 MMscf of raw gas was supplied from Jubilee, processed at the Atuabo Gas Processing Plant and transported to the Volta River Authority for power generation.

POWER

Ghana has an installed capacity of 3,000MW, split roughly 50-50 between hydroelectric and thermal sources. However, low levels of rainfall in the dams and erratic natural gas supply meant that peak was not reached over 2015, and emergency measures had to be sailed in, literally. Karadeniz Holdings, a Turkish group, sailed its floating power barge to Takoradi, and plugged its 450MW powership into the grid.
Figures from the Ministry of Power indicate that Ghana's power demand is growing at 12% per annum, and there is a target for 10% of that to come from renewable energy sources. Of this 10% envisaged, it is expected that 6% will come from solar, the 155MW Nzema solar plant, set to be commissioned in 2016.
The rest of Ghana's power is expected to come from IPPs, including GE and Norway's Jacobsen, and with the a few initiatives from the state-owned Volta River Authority.

One plan expected to start operation in 2017 is the CEN Power project. This will be a 350MW light crude oil and gas fired, combined cycle power plant, also known as the Kpone Independent Power Plant, and will be located in Tema. This was the first of its kind in Ghana, raising $900 million for the project, independent of government.

The government is expecting that further generation will be provided by the private sector through IPPs, which will complement supply from state-owned entities like the VRA and BUI.

Ghana has the ambition to be a net-exporter of electricity, but as it stands infrastructure is struggling to deliver power to the Ghanaian grid. With rapid urbanization and several transnational transmission lines envisaged for the region, business prospects for vendors over a variety of electrical and power equipment are opening within the transmission and distribution system.

FUELING GROWTH

In the summer of 2015, the World Bank made its largest ever partial risk guarantee of $700 million for Ghana's Sankofa Gas Project. The project's aim is to develop offshore natural gas reserves located 60km from the coast of Ghana to fuel up to 1,000MW of domestic power generation. The project is expected to substantially improve the Ghana's power services, replacing current reliance on light crude with cleaner and more affordable gas resources. The total investment is estimated at over $7.9 billion for the life of the project, representing the largest FDI in Ghana's history, and is expected to generate $2.3 billion in revenue.The gas field in question is the Sankofa gas field, part of a wider complex called the Offshore Cape Three Points (OCTP). This is Ghana's fourth producing field after Jubilee, Saltpond, and TEN. The OCTP contains five fields, the first three being non-associated gas fields located in the Tano Basin, with water depth ranging from 600-1,000m. The reserves are estimated to contain 1.5tcf of gas and once developed are expected to sustain Ghana's thermal electricity plants through 2036.The exploration and commercialization of the gas will be carried about by Eni and Vitol, in partnership with Ghana's National Petroleum Corporation (GNPC). Eni Ghana Exploration and Production is the operator of the block and holds a majority stake of 47.22%, Vitol Upstream Ghana holds 37.78%, and the GNPC holds the remaining 15%. The gas will be processed on a floating production storage and offloading (FPSO) vessel owned by Yinson Holdings, and sent via pipeline to the Western Corridor Gas Pipeline.The Sankofa field is expected to reach oil production in 2017 and peak at 80,000bopd in 2019, whereas gas production is expected to start in 2018, with a daily production capacity of 170mc; enough to generate 1,100MW.With poor prices, many feared for the medium-term prospects of gas production. However, the Italian Prime Minister made a speech during his visit to Accra in February 2016 in which he stated, “We know this is a very difficult moment for oil prices, but I am here and in my delegation I host the CEO of Eni to give a message of continuation and presence of Italian investors in this country." He continued, “Let me be very clear, Eni has a historical connection to Ghana, but this project will be a game changer for power generation in the country and bring benefits from here to 2086.