The Geopolitics of Gas: is Ghana prepared for the game?

The Geopolitics of Gas: is Ghana prepared for the game?

Special_Geopolitics of gasWest Africa’s great untold story is that of an ongoing, not-too-subtle, battle for space among its leading economies to be the major source of cheap electric power supplies within a sub-region noted globally for its notorious electricity deficiency.

Easily, the region’s three biggest economies, Nigeria, Ghana and Ivory Coast stand out in the race by virtue of either their natural endowment of energy resources or by the efficiency of their electricity generation, transmission and distribution systems.

Nigeria, following the recent statistical rebasing of its economy, now has an annual GDP far exceeding US$500 billion making it the African continent’s biggest economy. It is followed, in West Africa, by Ghana at a distant second with a GDP size just under a fifth of Nigeria’s and Ivory Coast trailing not too far behind Ghana. And while the latter two are nascent hydrocarbon resource frontiers, Nigeria is an established global producer and exporter of crude oil with massive known reserves of natural gas.

West Africa’s current situation only mirrors what has been happening on a grander scale in the world’s modern history, in which every international order is based on an energy resource. It has been noted by geopolitical analysts that whereas the Age of Coal and Steam was the backdrop for the British Empire in the 18th and 19th centuries, the Age of Petroleum has been the backdrop for the American Empire from the end of the 19th to the early 21st centuries. And indeed, just as other countries and America’s own elites were consigning the United States to a period of decline, news began to emerge of vast shale gas discoveries in a host of states, especially Texas. It is now anticipated that The Age of Natural Gas could make the United States the world’s leading geopolitical power well into the new century.

Fossil fuels, and especially gas, have also become the major underlying factor in the West African situation. Nigeria, with known oil reserves exceeding 37 billion barrels is also the largest holder of proven natural gas reserves in Africa and the ninth in the world. The country therefore, by far, has the greatest potential of becoming the major electricity hub in West Africa, if it could use its vast gas resources to fire electricity generating thermal plants. The country produced 1.2 trillion cubic feet of dry natural gas in 2012, ranking it as the world’s 25th largest natural gas producer, and exported 19.8 MMpta (950 Bcf) of LNG in 2012, accounting for more than 8% of globally traded LNG and making Nigeria the world’s fourth largest LNG exporter.

That notwithstanding, Nigeria’s natural gas production is, to a large extent, restricted by the lack of infrastructure to monetize it and is currently being flared.

After Russia, Nigeria holds the unenviable record of leading in gas flaring. It has been estimated that natural gas flared in Nigeria accounts for 10% of the total amount flared globally. Encouragingly, this has decreased in recent years, from 575 Bcf in 2007 to 515 Bcf in 2011 and there are a number of recently developed and upcoming natural gas projects that are focused on monetizing natural gas that is flared.

Ironically, despite its abundant endowment of fossil fuels, Nigeria has one of the lowest net electricity generation per capita rates in the world. Electricity generation falls short of demand, with about only 40% of demand met, resulting in load shedding, blackouts, and a reliance on private generators. The country is now in the process of privatizing the state-owned Power Holding Company of Nigeria in hopes that it will lead to greater investment and increased power generation.

Comparatively, Nigeria’s per-capita electricity consumption is woefully low; below 150 KWh compared to Ghana and Ivory Coast, which are less endowed with energy resources, but with per-capita electricity consumption of above 309 KWh and 174 KWh respectively.

Ivory Coast, obviously a distant second behind Ghana in electricity consumption per capita has a more stable electricity supply than the other two. The country, like Ghana, is an emerging hydrocarbons producer and only this April, French oil major, Total SA, announced a promising oil find in Ivory Coast’s offshore to its western coast. And despite the recent devastating civil war that undermined the country’s otherwise buoyant economy, Ivory Coast is regaining some of its vibrancy.

With domestic political stability has come a new regional ambition. Ivory Coast’s Prime Minister Daniel Kablan Duncan said in January that his nation will boost oil output, within five years, from a current low of about 30,000bopd to 200,000bopd, rivaling neighboring Ghana’s as stability returns to his country wrecked by a decade of turmoil.

Ghana presently pumps about 100,000 barrels a day and wants to more than double output to 250,000 by 2021.The country is West Africa’s fourth-largest producer, after Nigeria, Equatorial Guinea and Gabon.

But if the Ivorians are subtle on their ambitions to be an electricity hub in West Africa, the Nigerians are mincing no words about their intentions. The Minister of State for Power, Mohammed Wakili, said at an investors’ conference organised by the Transmission Company of Nigeria (TCN) in Abuja, in March, that some electricity to be bought from DR Congo would, in addition to augmenting domestic supplies, also be exported to some neighbouring countries where Nigeria’s transmission network expands to.

He disclosed: “Nigeria is in bilateral and multilateral relationships at various stages of advancement with other governments for the importation and exportation of power. We have signed an MoU with the Democratic Republic of Congo for the importation of electricity from the Inga Dam Power Plants, for both local consumption and export to other countries.

“The Inga is envisaged to exceed 40,000mw on full exploitation. TCN network spreads to all parts of the country and across the border to some neighbouring countries to form part of the West African Power Pool (WAPP).

“With the realisation of Inga and other initiatives, Nigeria will become a regional hub in international electricity trade, exporting large quantities of internally-generated as well as imported power to WAPP countries,” Wakili said.


Ghana, also, has made no secret about its intentions to leverage its efficiency and position as the sub-region’s leading consumer of electricity per capita, with an ambitiously aggressive programme of investments in generation and transmission infrastructure coupled with an equally aggressive push in energy conservation and energy use efficiency to enable it to become the major net exporter to electricity-deficient countries in the neighbourhood.

Presently, despite Ghana’s own power supply shortfalls – the country is still struggling to secure adequate gas deliveries to feed its ever-increasing numbers of thermal generating plants – Benin, Togo, Niger and Mali all look to Ghana for critical supplies of electricity, even if the volumes are low.

Consequently, Ghana’s government is looking to more than double its current available peak generation capacity of 1,965MW to 5,000MW by 2016 to adequately provide for its annual peak demand for electricity, which increased from 1,729MW in 2012 to 1,943MW in 2013 and with an annual demand growth rate is estimated at 12%, while also meeting sub-regional demand.

“Gas remains one of the sustainable sources of providing energy to our country,” says Dr. Mohammed Amin Adam, Executive Director at Africa Center for Energy Policy (ACEP), highlighting the need for a more robust approach to ensuring energy security in Ghana.

Hydro sources in Ghana are now highly limited; with a total potential of 2,500MW, the country has already utilised about 1,600MW of that (Akosombo-1,020MW, Kpong-160MW and Bui, which actually is yet to peak at 400MW). The remaining 900MW of the country’s hydro potential are scattered across 21 mini-hydro sites, where developing them as stand-alone generating units becomes extremely expensive and therefore, government is not looking, in the short to medium terms, at developing those sources.

A second alternative to gas is oil-fired plants. But apart from the fact that crude oil prices are relatively very high, they are also very volatile. Therefore, without a stabilization fund to cushion against the rampant price fluctuations, there will be much volatility in the course of generating power with oil.

“As of today, all our thermal generating plants, except Sunon-Asogli, are dual purpose and they can use light crude oil (LCO) or natural gas, which means that we are moving to high level of fuel substitution and most preferably gas, which is relatively not only cheaper than oil but also more environmentally friendly,” says Dr. Adam.

So obviously for Ghana, gas offers a more efficient option of electricity generation and the thermal plants are sprouting by the day. What is left is gas. And this is why gas has become so important. However, as a result of insecure deliveries of gas, the country’s vulnerability has heightened.

“It means, if we have to solve our energy problems, gas is no longer an option but a necessity and this is why it is important that we are discussing commercial pricing of gas as a measure towards solving the power challenges of our country,” Dr. Amin notes, referring to botched contractual arrangements for gas deliveries through West Africa Pipeline Company (WAPCo) from Nigeria, and also to enable the rapid development of domestic gas potential.

“It is common knowledge now that Nigeria’s gas is not conducive anymore. With a contract to deliver 123MMscfd, they have been giving us volumes as low as 30MMscfd,” he said, noting further that Ghana is not likely to get more gas from Nigeria; “and the reasons are obvious; our prices are no longer competitive to Nigeria, which is also currently focusing on domestic consumption because they are increasing their own generation capacity from 6,000MW to 12,000MW by the end of 2014 and then to 15,000MW by 2020. This means more domestic use of gas in Nigeria.

“So we are competing with Nigeria, and if you are competing with the producer, of course you will be at the losing end,” Dr. Amin explains

Another issue on price is that Nigeria is getting better prices from new markets in Europe and the country is about to commence the construction of a pipeline connecting it, through Algeria, to Europe where they are going to get better prices.

Some have argued that if Nigeria is no longer interested in supplying Ghana with the required quantities, why doesn’t Ghana abrogate the contract and concentrate on its own indigenous sources of gas?

Ghana has about 4Tcf of gas reserves and that can translate into some 3,300MW of generation capacity, if planned or confirmed plans of investments into gas development, which will lead to its commercialization, are carried through. Some effort is ongoing in that direction but, that also has been slowed down by local politics, as well as financing challenges.

Petty squabbling over siting of a gas processing plant to make use of gas from Ghana’s Jubilee oil field added its own delays to that which has been occasioned by a cumbersome financing arrangement with the China Development Bank, which in principle has assured Ghana of a US$3 billion loan facility but its disbursement has proven to be a nightmare for Ghana.

As a result of these challenges, set dates for gas delivery have had to be extended for over two years.

Government’s inability to deliver the gas processing plant has created a sharp division among Jubilee field operators. One faction is pushing for the operators to build their own processing plant if they are to comply fully with a government policy of zero gas flaring. Unimpeachable sources hold that this policy is not being applied stringently because government has not kept its side of the bargain. This relaxation of the policy is to prevent the compromisation of the integrity of the oil wells and their production plans as a result of re-injecting gas back into the wells since production commenced fully in 2010.

Given Ghana’s difficult situation, Dr. Adam argues that; “as far as supply is concerned, we cannot say we will do away with Nigerian gas, however small it is. This is also because, Nigeria has not violated the agreement Ghana signed with them on gas supplies. Yes, in the agreement, the minimum quantity is 123MMscfd, but they haven’t violated the contract because we have what we call a free flow agreement with Nigeria; a free flow means I give you what I have. And so if they are giving us 30MMscfd, we can only beg for more, rather than triggering the appropriate penalty clause because we know that the free flow clause means they cannot give us what they don’t have.”

There will be two implications if the contract is abrogated. The 200MW Sunon-Asogli thermal plant will have to close down completely because Ghana Gas doesn’t have a pipeline connection to Asogli. Ghana Gas’ pipes terminate at Aboadze.

The second implication is that WAPCo will also have to close down. The company’s closing down also means certain penalties for Ghana. And not only to Ghana but also the other countries of Benin and Togo who also are on the pipeline project.

Additionally, relying on only Jubilee gas is problematic because that gas is not even sufficient for the Aboadze thermal plant and yet, as a result of the increase in demand for power currently estimated at 12% yearly, Ghana is likely to add more thermal plants, up to 80% of which will be gas fired.

There is however serious conversation going on about the establishment of coal-fired thermal plants since that offers both cheaper options and superior supply security than gas. While government strongly favours the coal option and the Energy Commission reveals it has had serious enquiries from prospective investors, including Sunon-Asogli, no licenses have been issued yet.

Yet another thorny issue with domestic gas is that of ownership. In government’s contract with the Jubilee partners, GNPC is the owner of the share of Ghana’s gas. Butthe mandate that established Ghana Gas Company gives it the power to own gas, build infrastructure, transport gas and sell gas.

Dr. Kwabena Donkor, a member of the Parliamentary Select Committee on Mines and Energy has urged government to resolve this issue before the first delivery of Jubilee gas, since it is already creating a problem for investors with regards to which government agency to enter into agreements with.

Tellingly, the Volta River Authority (VRA) is supposed to be the primary user of the Jubilee gas yet there has not been a signed gas purchase agreement between VRA and Ghana Gas or GNPC.

Ghana has another source of gas, Sankofa, which is a non-associated gas field, which holds so much promise. However, for close to one year its plan of development with government has not been approved. So the expected date for the delivery of gas from Sankofa, in 2016, is no longer certain.

Worryingly, the operator of Sankofa, ENI, which has made more significant discoveries of gas in Mozambique that renders the Ghanaian find a drop in the ocean, may now focus more on developing their substantial discoveries in Mozambique than in Ghana.

Given the round numbers; Jubilee’s 120MMscfd. TEN’s (Tweneboa-Enyenra-Ntomme) 80MMscfd and 50MMscfd from Nigeria totaling 250MMscfd, VRA’s demand of gas for power generation alone at 400MMscfd means Ghana still runs at a deficit of about 150MMscfd even if both Jubilee and TEN come on-stream and peak.

“This is why I say planned investments in gas development and gas commercialisation will even not be enough for us in the short term, Dr. Adam explains.

Consequently, there has developed a strong advocacy to use imported liquefied natural gas as the short term measure to improve Ghana’s generation challenges.

Quantum Power Ghana Gas Limited, a subsidiary of Quantum Power UK, after acquiring a provisional license from the Energy Commission, is developing the integrated infrastructure needed to import LNG, store it, re-gasify it and deliver it to large-scale users in Tema by means of a floating storage and re-gasification unit (FSRU) technology. This significantly lowers cost and delivery time for LNG projects.

Quantum claims its initial output could provide the needs of most of the large-scale gas users anticipated to operate in Tema by 2016, and as demand in the Tema market expands, it would bring additional re-gasification units on the FSRU.

Typically, this solution also seems set to be marred in local politics as the state-run Ghana Gas Company announced recently that it has teamed up with African Power Generation (AfGen) in a new joint venture to fast-track a liquefied natural gas import project in Ghana.

While early signs of bickering between the two emerge as to which arrangement best serves Ghana’s interest in securing stable supply of gas for the thermal plants, another emerging issue is about whether to use imported gas for electricity generation while using domestic gas as feedstock for an envisaged petrochemical industry, or, vice versa.

But while local politics may be hobbling progress of Ghana’s ambitions of becoming the electricity hub of West Africa, technocrats are still busy about identifying and promoting the cheapest source of energy required in making the country the most efficient electricity producer.

Being the most efficient electricity producer in the sub-region becomes even more imperative for Ghana when considered against the backdrop of the sheer volumes of Nigeria’s gas reserves. And while Ghana considers the use of coal, which is estimated to cost five times less than gas, as well as the use of imported LNG to augment domestic gas, Ghana will still need to need to be able to attract investors into the country’s upstream to explore for dedicated gas and this requires a number of things, including fiscal incentives.

This is already being done with oil contracts, but the royalty for gas is lower than the royalty for oil, because gas prices globally are lower than oil prices and so there is no incentive to develop gas fields compared to oil fields. Ghana therefore needs to be able to provide some incentives to attract the investors.

When they come and make discoveries, investors need also to be incentivized to develop the field and produce gas. Comparatively, gas markets are far apart. So gas may be found but it can’t get it out until the investor is able to secure the market for it.

Ghana, therefore, needs to build its domestic gas market, not only to guarantee demand but also to add value to its gas; either through electricity generation or through the development of a petrochemical industry. And it is in this regard that bickering over such issues has the potential of undermining Ghana’s best bet of a secure domestic source of cheap energy, through further exploration and production of gas.

There is much talk about Ghana’s potential of becoming West Africa’s major electricity hub, given its head start in production and distribution competencies, coupled with the potential of securing cheap energy sources for generating electricity, including both domestic and imported gas, as well as coal fired plants. However, domestic politics continue to blur geopolitical imperatives and could permanently erase whatever competitive advantages Ghana have over its better endowed energy-resource neighbour to its east and the other unassuming but determined neighbour to its west.