Ghana’s oil holds promise to enrich the economic mix

When Kosmos Energy of the US discovered the Jubilee oilfield off the coast of Ghana in 2007, the west African country had already been harvesting cocoa for 60 years and mining gold for a century.

Charles Adu Boahen, deputy finance minister, says his country is lucky. By finding oil reasonably late in its development cycle, he says, it stands a better chance of avoiding the resource curse that has befallen other nations.

“When I was growing up, Nigeria was the number one competitor on cocoa exports,” he says. “Today, I don’t even think there is one cocoa tree left in the whole of Nigeria. Everybody has moved to oil; that’s what the whole country eats and dreams about.”

Ghana has escaped that fate. This is largely because it already has a diversified economy in which oil — at least for now — plays a relatively minor role.

At today’s production levels, the country is still a big net importer of crude. Oil revenue contributes only about 6 per cent of government income, according to data from the finance ministry.

Officials describe Ghana’s Petroleum Revenue Management Act of 2011 as a solid document. The act prevents Ghanaian governments, of whatever stripe, from front-loading revenue by selling oil on the futures markets. Modelled on Norwegian regulation, it stipulates that 30 per cent of petroleum revenue be paid into a stabilisation and a heritage fund, rainy-day funds for emergencies and future generations.

One indication that Ghana has not succumbed to Dutch disease — the term given to over-dependence on a single commodity — is that its currency has not strengthened excessively. Quite the reverse. While once there had been concern that Ghana’s exports could be hindered if the cedi hit parity with the dollar, today Ghana’s currency trades at five cedi to the dollar.

As things stand, Ghana will secure its place as a top-five oil producer in sub-Saharan Africa by 2020 with production of about 250,000 barrels, according to Ecobank, a pan-African bank. That would still put it a long way behind Nigeria, with production of 2.2m barrels a day, and Angola, at 1.8m.

Ghana’s production is largely accounted for by the Jubilee field, at about 100,000 barrels a day, and the Tweneboa Enyenra Ntomme, or Ten, fields, at 70,000.

Both fields are operated by Tullow of the UK, which joined forces with Kosmos — at the Ghanaian government’s urging — shortly after oil was discovered a decade ago.

In addition, Eni pumped the first oil from its Sankofa field in 2017. Sankofa is, furthermore, part of the $8bn Offshore Cape Three Points integrated oil and gas project, which is expected to double domestic gas supply to 360m cubic feet by the end of next year. Gas is already piped from the Jubilee field to power a 200MW thermal station built by the Chinese.

Gas produced by Sankofa could boost electricity generation by 1,000MW, according to analysts, ensuring that Ghana has a stable supply. A cash crunch during the previous administration caused rolling power cuts because the government could not afford to import enough oil for its thermal plants.

Exposure to lossmaking energy companies, forced to sell electricity at below cost to customers because of government regulations, was one of the underlying causes of the banking crisis that came to a head this year.

Ghana’s oil is in deep water, about 60km offshore. That means its impact on the economy, outside royalties paid to the government, is not always apparent. Ghanaian companies supply catering and waste management services to the rigs, but are unable to provide sophisticated equipment, limiting the domestic supply chain.

Until fairly recently, Ghana’s universities did not offer courses in petroleum engineering, obliging companies to hire from abroad, although there are now several Ghanaian engineers.

There is time for Ghana to move further up the value chain. Eric Haas, senior vice-president for production and development at Kosmos, says all indications are that Jubilee will be producing oil for a long time to come. “The field will be there long after our licence expires in 2034,” he says. “I believe it will produce until 2050.”

Mr. Haas, who led Kosmos’ assessment of the Jubilee field, says what has been discovered off Ghana could be just the start. “Exxon made an entry late last year,” he says, referring to a deal under which the US oil major acquired the rights to explore for oil in depths of up to 4,000 metres.

“It’s a very good indicator that there’s a considerable amount of resource remaining. Ghana offshore is very lightly explored and therefore there is a lot of remaining potential.”

Mr. Boahen says Exxon is similarly confident. “They are very enthusiastic about what they are seeing from the seismic data,” he says.

“They feel like this is a half a million barrel-type operation. If that goes through, we could quintuple production by 2022. That would put us on the map as a very serious player.”

Source: Financial Times

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