Overdependence on gas imports hurting investment in local sector

Investments into local gas resources could be severely affected by overreliance on imported gas, says the Africa Centre for Energy Policy (ACEP).

It said local gas remains the most competitive option to unlock many benefits for the country, but added that high dependence on imports poses a real threat to development of the domestic gas sector.

“The decision to import gas has implications for how much investment Ghana can attract for domestic production and the country’s ability to optimise existing infrastructure, which is contrary to the communicated capacity of domestic sources by the operators, Tullow Ghana and Eni,” the energy think-tank said in a report.

Titled ‘The state of the energy and extractive sectors of Ghana: critical reforms required for sustainable economic recovery’, it said foreign gas also increases the country’s exposure to gas import risk, aside from having the ability to stifle the local sector.

Ghana currently imports gas from Nigeria through the 600km West Africa Gas Pipeline (WAGP) and the Tema LNG Terminal operated by Ghana National Petroleum Corporation (GNPC), where first cargo is expected in second quarter of this year.

On the GNPC deal, it said the Gas Sales Agreement (GSA) between GNPC and Shell for LNG supply is benchmarked against the price of Brent Crude, which introduces significant volatility to the pricing mechanism in Ghana.

“Currently, delivered LNG will cost GNPC about US$15/MMBtu. The LNG price is more than twice the most expensive gas from existing sources.

“Given that the power sector is a major consumer of gas, the US$15/MMBtu price will have to be absorbed by the power sector through increased tariffs or subsidies by government,” the report said.

Meanwhile, domestic sources come from the Jubilee and TEN fields, operated by Tullow Ghana Ltd. and Eni’s Sankofa Gye Nyame (SGN) field. However, due to lack of infrastructure, the country is unable to utilise prospects of domestic gas.

For example, about 246 billion cubic feet (bcf) of gas was either flared or reinjected between 2019 and 2021. Out of this quantity, about 46.8bcf was flared while 199.8bcf was re-injected.

The flared gas from Jubilee and TEN fields would account for a daily supply of about 50mmscfd if infrastructure was expanded as scheduled.

In addition, ACEP said the cumulative volume from reinjected and flared gas could provide an additional volume of over 100mmscfd from the Jubilee and TEN fields, enough to meet Ghana’s medium-term gas needs.

“Again, gas delivered from the expanded Ghana Power Plant to power plants and non-power users could be another revenue-generating source for the upstream gas sector. The total flared volume of 47bcf accounts for a forgone gross revenue of about US$300million in addition to the allied benefits as indicated above,” it noted.

The report reiterated that recent geopolitical issues and their impact on global commodity prices underscore the need for Ghana to focus on developing its domestic gas assets, which requires investment.

It further stated that because gas has become an integral part of the country’s development, particularly in the power sector where most thermal power generation plants currently rely on gas as the primary fuel source, it would make economic sense to optimise domestic resources.

“The outlook of gas supply has been in contention since 2016, when a stronger commitment was made to source Liquified Natural Gas (LNG). Government and GNPC believe that the existing sources are not enough to meet gas demand in the country, a justification for importing LNG. On the other hand, independents [market watchers] have held that such a need is overestimated.

“Indeed, if government’s assumptions for augmenting existing sources with LNG in 2020 had materialised, Ghana would have paid about US$500million in the past two years for LNG that’s not needed. Thus, Ghana has only been lucky with unanticipated delays in completing the LNG terminal at Tema.

“The risk of committing to a long-term LNG contract remains unmitigated. This introduces two implications: dampening investment in the country’s domestic gas sources, and the country’s exposure to the volatility associated with LNG prices,” it further stated.

“Government must ensure that GNPC reviews its LNG import plans. Given that the regasification infrastructure has been developed, GNPC must decouple the infrastructure from the commodity supply. This reduces government’s liability to the cost of regasification, which averages about US$1/MMbtu globally,” it said.

Source:West Africa Gas Pipeline (thebftonline.com)