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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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This African Nation Just Mortgaged Its NatGas Reserves To China

LPG terminal

The current downturn in the global oil and gas sector is yielding some innovative approaches to project finance.

And one nation this week came up with an unprecedented strategy for moving its petroleum sector forward.

That’s the West African country of Ghana. Where the government says it is close to a deal to “mortgage” its petroleum reserves to Chinese development banks — in exchange for massive loans needed to build production equipment.

Ghana’s Minister of Finance, Seth Terkper, said in a radio interview late last week that his government has tabled an unusual proposal to China Development Bank (CDB). Offering to let them have output from the massive Jubilee offshore natgas field for up to two decades — if they pay to put it into production.

Finance Minister Terkper said his government is asking CDB to kick in $1.5 billion needed to build Jubilee. In the form of a loan, that will be paid back in production from the field.

That repayment would reportedly consist of natural gas liquids exports from the project — starting in 2018, and running for a period of 19 years.

The strategy is an interesting one. Actually building on a previous loan program that CDB agreed upon with Ghana nearly 10 years ago. That deal had contemplated a loan of $3 billion to Ghana’s government, in exchange for crude oil — but falling oil prices spooked the bank, and only $1 billion in funds were actually dispersed.

Ghana’s government now wants to access the remaining $2 billion — using higher-value natural gas as an enticement. A strategy somewhat akin to offtake deals often struck in the private sector. Where a commodity end user provides development capital in exchange for guaranteed supply.

The difference here is, this deal is being proposed by a government — an entity charged with managing domestic natural resources for the good of the people. And there are varying opinions on how much value Ghana itself might actually realize from such a loan arrangement.

If successful, this could become a new model for resource development — especially in emerging markets. Watch for a response from Chinese officials to Ghana’s proposal.

Here’s to making it work.

By Dave Forest

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