PUMP IT UP

Ghana 2018 | ENERGY | REVIEW

Though oil production began just a decade ago, high levels of investment have Ghana ready to play a significant role in the export market.

In a moment when some of the world's largest oil producers are looking to a future without oil, Ghana is bucking the trend and rededicating itself to oil production. Still fairly new to the petroleum industry, Ghana's production is small in absolute terms but has grown significantly in recent years. New offshore fields recently came online, and exploration is underway at a number of other sites. The recent fall in oil prices has led to a dip in revenue, but analysts are still optimistic about the future of the industry in Ghana, praising its well-constructed regulatory structure and social stability. The industry is projected to become the fourth largest in Sub-Saharan Africa by 2020, but the challenge facing Ghanaian officials will be to ensure that it develops in such a way that contributes to the welfare of the larger population while avoiding the pitfalls of overreliance and corruption that have plagued African exporters.

OIL

Ghana's oil production began in 2007 with the discovery of reserves at Jubilee field 40 miles offshore close to the Ivory Coast border. Ghana began production within 40 months of discovery with the assistance of high levels of international investment, producing an average of 45,000bpd in 2010 and 80,000bpd in 2011. In 2016, Jubilee was joined by the Tweneboa, Enyenra, and Ntomme (TEN) field, an offshore project eventually expected to produce 80,000bpd. Both of these fields are operated by a consortium led by UK-based multinational Tullum in collaboration with Ghanaian energy firms. By the end of 2016, Ghana's oil output reached 190,000bpd, 110,000 of which came from Jubilee field. TEN field saw production delays in 2016 due to a border disagreement with Ivory Coast; the two countries disagreed on where TEN field stood relative to the maritime boundary between the two nations and whether Ghana owed Ivory Coast reparations for its offshore activities. After bilateral talks failed, the two countries took the dispute to the International Tribunal of the Law of the Sea, which ruled in Ghana's favor in September 2017. With this out of the way, Ghana expects production at TEN field to rise to 80,000bpd within months. The field has 10 wells currently drilled, and the most recent plans for full production call for 24 total wells.
Revenues from oil boosted GDP growth over 8% annually until 2013, but falling prices led to a corresponding increase in the federal deficit and new fiscal pressures on the country. After six years of annual GDP growth averaging over 8%, GDP growth has remained below 9% since 2014. In 2016, GDP growth slowed to 3.5%, its lowest rate since 1994. A look at oil revenues reveals the primary driving forces behind those larger economic trends; after peaking in 2014 at USD978 million, oil revenues fell to a new low of USD247 million in 2016, well below the budgetary estimate of USD502 million. While falling oil prices were the primary cause of this shortfall, production itself fell due to a number of issues, with the sector going from output of 37.4 million barrels in 2015 to 32.2 million barrels despite the debut of TEN field. The primary culprit was an engineering issue that necessitated a 34-day shutdown of the Jubilee field in early 2016. Although production was able to continue, capacity was affected, and later in the year Jubilee field's operators determined that large-scale repairs were needed to ensure the structural integrity of the field. These additional repairs are planned for 12 weeks spread across 2017 and 2018.
Moving forward, Ghana's priorities are bringing the Jubilee and TEN fields up to speed. The youth and inexperience of the industry means that the rapid pace of development has brought challenges, but government officials are confident that the industry can hit 240,000bpd by 2020 thanks to the expected arrival of two new oil fields. Italian firm ENI started production on the Sankofa offshore field in July 2017, which is expected to bring 30,000bpd more of oil capacity. 2017 brought positive movement for the sector, a sign that industry faith in a recovery is not misplaced. Oil revenues more than doubled from USD93.4 million in 3Q and 4Q2016 to USD191 million in 1Q and 2Q2017, largely thanks to production rising to more than 165,000bpd as of early 2017. The industry enjoys some key benefits that set it apart from other African oil exporters: its offshore sites are safe from the social turmoil that has disrupted production in other countries, its regulatory framework has drawn praise from international observers, and the oil itself is high-quality sweet crude that is inexpensive to process.

GAS

As oil output increases, natural gas production has grown as well. In contrast to oil's export-based nature, natural gas' impact will be primarily domestic. Electricity generation has long been a challenge in Ghana, which has historically relied on natural gas imports from Nigeria to meet its energy needs. Wasteful diesel-generator units are still a major electricity supply source, and Ghanaian officials see increased natural gas production as a key step in cutting emissions and bringing new swaths of the country online to a more stable electric grid. As such, the government has established regulations encouraging new foreign development in the sector; state commissions for natural gas projects are more than 30% less than for oil.
Ghana has proven gas reserves of more than 2 trillion cubic feet (cbf) of natural gas. Production has begun in tandem with oil at Jubilee and TEN fields, which combined to produce around 50 billion cubic feet in 2016. Almost all of this came from Jubilee, as almost 75% of the gas produced at the TEN field was flared. The government has made the further development of gas export infrastructure a priority in order to fully take advantage of the reserves at Jubilee and TEN, which are estimated at 505 billion cbf and 396 billion cbf, respectively. Gas export pipelines were installed at Jubilee in February 2017, and TEN was on pace to make its first gas deliveries in mid-2017 before ramping up production in 2018.
Even more promising is the Sankofa gas field, which has reserves of 1.07 trillion cbf. In 2014, Ghana entered into an agreement with the World Bank to help make the USD7.9-billion investment needed to develop the site. The resulting deal saw the World Bank make USD700 million in payment guarantees, giving the private sector the confidence needed to forge ahead with the project. Long term, the Sankofa gas project is expected to fuel up to 1,000MW of power generation, equal to 40% of Ghana's current installed capacity, and generate more then USD2.3 billion of revenues. Little wonder, then, that the World Bank described the impact of the project as “transformational." Additional exploration is underway both offshore and in the north of the country, but Ghana is confident that development of its currently installed capacity alone will lead to massive gains; Ghana National Petroleum has forecasted that the value of the oil and gas industry will triple to USD60 billion by 2022. With steady leadership and the backing of the international community, few should be surprised if it meets those lofty goals.