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Oxford Business Group

Oxford Business Group

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Ghana’s Energy Industry Becomes A Boon For The Economy

On October 15 President Nana Akufo-Addo announced the opening of the country’s first open and competitive round of bidding for energy exploration licences, with three offshore blocks being offered. Previously, Ghana had awarded leases through a closed negotiation process.

All of the blocks are located in Ghana’s Central Basin, with the terms of the tender mandating that bidders have the financial capacity and technical expertise to undertake the exploration and extraction.

Bidders also have to present a timetable for their exploration and development programme and must detail plans for the equity component and skills transfer to local partners.

President Akufo-Addo also announced a review of all licensing agreements covering blocks that were inactive, where concession holders had not undertaken the required exploratory or development work.

This move could see a number of blocks re-enter the market, either through competitive bidding or direct negotiations, generating further interest in the upstream component of the industry from both independent operators and major players.

International energy companies partner with domestic firms

Under regulations governing upstream exploration and extraction, overseas operators are required to have a minority partner with a minimum 5% stake in the operation. One international player that is already moving into the market is ExxonMobil, which was awarded the deep-water West Cape Three Points Block in January.

In October the government announced it has no objections to a partnership between ExxonMobil and domestic fuel distributor Ghana Oil Company, thereby clearing the way for the joint development of the block, possibly within the new year.

At the same time, as it is opening competitive bids for the Central Basin blocks, the Ministry of Energy (MoE) has also called for bids without tenders on two other leases sited in the West Cape Three Points Block concession. Related: 2019 Will Be A Wild Year For Oil

In a statement issued in late October, the MoE said it was seeking to open direct negotiations on the two blocks to accelerate upstream activities so as to increase petroleum production and drive up reserves, with offers sought from established operators experienced in deep-water extraction.

Previous test drilling has highlighted oil and gas deposits, though with both blocks the reserves are not easily accessible, as they are located at depth of some 4430 metres, meaning the cost of developing these leases will be high.

Gas expected to drive future growth

Although the development of these offshore sites will require significant investment, rising international oil prices could well justify the expense. Furthermore, expanding domestic demand for gas is expected to incentivise gas exploration.

Indeed, while development of major offshore oilfields is set to boost export earnings and stimulate investment inflows, it is Ghana’s gas reserves that are expected to drive future growth in the hydrocarbons segment as power plants in particular turn to natural gas.

“Notably for thermal power plants in Takoradi and Tema, light crude oil was the initial go-to fuel for energy creation until the completion of the West Africa Gas Pipeline and the discovery of commercial quantities of natural gas in Ghana just over 10 years ago.” Theophilus Sackey CEO of Cenpower, told OBG. “With its lower environmental footprint and traditionally lower prices, natural gas is better suited to the Ghanaian electricity market than alternatives.” Related: Why Russia Agreed To Additional Production Cuts

In a sign that this journey has already begun, the Italian multinational Eni announced in October that it is moving to ramp up production at its Sankofa oil and gas field from a maximum capacity of 180m standard cu feet (scf) per day to 260m scf, once the necessary supporting infrastructure is installed.

Furthermore, the offshore Tweneboa, Enyenra and Ntomme field – which is operated by Tullow Oil in cooperation with the government-backed Ghana National Petroleum Corporation, and international firms Kosmos, Anadarko and PetroSA – began gas production in the second quarter of 2018.

This expanded production is important given that the country is currently a net importer of gas, currently meeting demand via imports from Nigeria and Equatorial Guinea, as well as through an agreement with Russian hydrocarbons firm Rosneft.

Rising domestic production may scale back this reliance on foreign energy, as new sites are brought on-line. This move could also support an increase in domestic industrial capacity, in turn opening up new investment opportunities across the economy.

By Oxford Business Group

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