LIQUEFIEDNATURALGAS(LNG)SUPPLYTOGHANA:THEPOLITICS
ANDTHEREALITY
ANADVISORYPAPERFORTHEGOVERNMENT
August,2017
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1.0BackgroundGastopowerhasbeentrendinggloballygiventhebenefitsithasofbeingcheaperandcleaner
comparedtootherfossilfuels.GhanasigneduptotheWestAfricaPipelineProject(WAGPP)
inrecognitionoftheimportantrolegascouldplayinthepowersector.Theinitialcontracted
volumeofgaswas120millionstandardcubicfeet(mmscfd).Aftercompletionoftheproject,
Nigeriacouldnotdeliverthecontractedvolumefromfirstgas inDecember2008. In2012
NigeriaGassupplywascutasaresultofanaccidentinTogowherethepipelinewassevered
bytheanchorofaship.Atthesametime,Ghana’sdomesticgassupplycouldnotbedelivered
ontime.TheJubileefieldwasexpectedtoheralddomesticgassupplybytheendof2012.
Thiscouldnotbeachievedbecauseof technicaland financial reasons.Ghanastruggled in
manyinstancestosatisfytheconditionsforthedisbursementoftheChineseDevelopment
Bank(CDB)loanfacilityandtimelydisbursementofcounterpartfundingbygovernmentitself.
In2012thepowercrisisstartedasaresultofgassupplycurtailmentsfromNigeriaandJubilee.
Thepush foralternativesupplyofgasheightenedandLiquefiedNaturalGas (LNG)supply
throughtheuseofFloatingStorageandRegasificationUnit(FSRU)washighlyconsideredby
government throughprivatecapital.TheEnergyCommission (EC), thetechnicaladviser to
government, by 2013 had licensed seven (7) companies to develop LNG projects.
Notwithstanding, there remainsan indecisionover thesupplyofLNGtoGhanawhichhas
lastedformorethan5years.
Initially, the fear of gas glut blighted any seriousness to consider LNG. The general
assumptionswerethatdomesticsupplyofgascouldreach350mmcfd;beyondtheJubilee
gas,GhanaalsoexpectedadditionalgasfromtheTweneboah-Enyenra-Ntomme(TEN)field,
theSankofa-Gye-Nyame(SGN)fields,andtheMahogany-Teak-Akasa(MTA)field.Moreover,
Nigeriagascouldberestoredtoatleastthecontractedvolumeof120mmcfd,pushingtotal
gassupplyinexcessof450mmcfd,whichwouldbeenoughtopowerabout2600MWofgas
turbines.Therefore,basedonthoseassumptionsandprojecteddemandforelectricity,an
LNGcommitmentwasrisky forgovernment.Asa result,noneof theseven (7)companies
licensedbytheEnergyCommissiontosupplyLNGsince2012haveprogressedbeyondthe
licensetocommissionanLNGfacility.
2
TheoutcomeoftheindecisiononLNGandoverrelianceonNigeriagascontributedtothe
long period of power supply deficit which affected the health of the Ghanaian economy
between2012and2015.
From 2015 to date, government has renewed seriousness to procure LNG. In 2015, the
government signed contracts withWest Africa Gas Limited (WAGL). The Ghana National
PetroleumCorporation(GNPC)alsosignedanLNGsupplyagreementwithKaheelInvestment
ofDubaiin2016,thesecondafteranagreementwithQuantumgasLimitedwassignedbefore
2015. The government is also considering an LNG supply agreementwith Blystad Energy
Management(BEM).
Inthispolicypaper,ACEPhasanalysedthecostofGhana’sindecisiononLNGsupplyandthe
unendingpoliticswhichriskthesustainabilityofthepowersector.
2.0 HowMuchDidGasContributetotheEnergyCrisisbetween2012and2015?
Thechallengesofthepowersectorhaveevolvedovertimetobesummarizedinthesector’s
lexiconasTechnical,FinancialandManagerial.However,fuelsecuritywasaprimaryfactor
whichescalatedthechallengesbeyondcontrolin2012andtheyearsafter.Thecessationof
gassupplyfromNigeriarenderedthermalplantslikeAsogli,MineReservePlant(MRP),and
TemaThermal2Plant(TT2P)redundant.Aship’sanchorseveredtheWestAfricaGasPipeline
inAugust2012intheterritorialwaterofTogo.Ittookoneyearforgastoberestored,against
theexpectationofashorttermfix.Afterthepipelinewasfixed,thesupplylevelsremained
belowthecontractedminimum.ThisputsignificantpressureonVoltaRiverAuthority’s(VRA)
dualfuelplantsandthehydroplantstogeneratethepowerdemandedbythecountry.
TheimmediateresponsewasthatVRAhadtoswitchitsdualfuelplantsfromgastomore
expensive Light Crude Oil (LCO) without commensurate tariff to compensate for the
additional cost incurred in procuring LCO. This trended to the point where VRA’s credit
worthinesswaserodedagainstrisingoilpricesontheinternationalmarket.Atthesametime,
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the stress on the hydro plants resulted in over-drafting of the dams which necessitated
significantdropinoutput.BuiAuthorityissuedastatementtosaythat“Theexceedinglyhigh
levelofgenerationsupportthattheBuiGeneratingStationhasbeenprovidingforthenational
electricitygridsincetheinaugurationoftheBuiplanthascausedtheBuireservoirleveltofall
to the minimum operating level of 168 metres above sea level (masl)”.1 The dams were
politicallymanageduntiltheyoperatedbelowminimumlevels.
OwingtothepressureonVRAtogeneratepowerfromthedualfuelthermalplant,theVRA
missed some scheduled maintenance timelines. This affected the plants, resulting in
avoidablefaultswhichcompoundedthepowerproblems.
Itisthereforewithoutargumentthatgassupplycurtailmentwascentraltothegenesisand
protractionofthepowercrisisinGhanabetween2012and2015.
3.0 RiskaversionagainsttheresultantcosttoGhana
AtypicalcostofLNGfacility,usingFSRU,couldrangebetween$400Millionto$600million
depending on scale, siting and existing infrastructure for evacuation of gas to demand
centres.ThisisthepotentialriskthatGhanafacedintheeventthattheinvestmentbecame
unnecessary,assumingalltheplansfordomesticgasandNigeriagassupplymaterialised.The
power sectorwouldhavehad toabsorb the cost in that scenario.However, this scenario
paints a significant cost burden in the absence of a counterfactual analysis of the cost
associatedwiththeeventualitythatallplansfordomesticgasandgasfromNigeriadidnot
materialize.
AlltheanalysesontheneedforLNGaroundthetimeGhananeededtotakeadecisionfailed
toanalysethecostontheGhanaianeconomyofpotentialfailureofthegassupplyplansfrom
domesticsourcesandNigeriathroughWAGP.TheWorldBankprojectedthatGhanamaynot
needLNGbeyond2017whendomesticsupplyfromJubilee,TENandSankofawereexpected
1http://www.graphic.com.gh/news/general-news/bui-power-reduces-generation.html
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tocomeonstreamandthereforeLNGmaynotbenecessary.2Thiswasbasedonassumption
thatLNGcouldtakeupto4yearstobedelivered,whichfurtherassumedthatLNGprojects
signed up for could coincide with the timing for adequate domestic gas supply. This
assumption failed to recognised that the delivery of LNG through an FSRU could be fast-
trackedandachievedwithin18months.
TheEnergyCommission(EC)wasquiteemphaticinits2012EnergyOutlookforGhanathat
LNGwasnecessaryanddemandedcommitmentfromGovernmenttomobiliseinvestmentin
theshortestpossibletime.TheCommissionrecommended“Governmentshouldproactively
create incentives to encourage investment in LNG regas facility built at her coast at the
shortest possible time. An investment workshop for stakeholders where the government
entities including Ghana Investment Promotion Centre and the Ministries of Energy and
Financecantabletheeconomicandinvestmentincentivesthatthegovernmentcouldoffer
wouldbeveryessential”.Between2012and2014,LNGcouldhavebeendeliveredonafast-
trackbasis.Unfortunately,theEC’sveryimportantsignaltothegovernmentfailedtogetthe
neededattention.
HadtheadviceoftheECbeenheeded,andhadtheMinistryinvestigatedthecostofinaction
tothecountry,thepowersectorwillnotbeashighlyindebtedasitis
today. ACEP estimates that the power sector lost $1.042 billion in
revenuein2014and2015duetoloadshedding.A2015reportbythe
InstituteofStatisticalSocialandEconomicResearch(ISSER)alsoputs
thecostofloadsheddingontheGhanaianatbetweenUS$320million
andUS$924millionannually.Noanalysishasbeenabletoquantifyloss
ofhuman lives,propertyandbusinesses thatpermanentlycollapsed.Again,asat the first
quarterof2017, theenergy sectorwasestimated tobe in$2.4billiondebt.TheVRA, for
example,whichmadeprofitsin2011wouldhavecollapsedwithitscurrentdebtburdenifit
2Suniletal(2013).EnergizingEconomicGrowthinGhana:MakingthePowerandPetroleum
SectorsRisetotheChallenge.Availableat
http://documents.worldbank.org/curated/en/485911468029951116/Energizing-economic-
growth-in-Ghana-making-the-power-and-petroleum-sectors-rise-to-the-challenge.
Accessedon7/25/2017at3:53PM
ACEPestimatesthatthepowersectorlost$1.042billioninrevenuein2014and2015duetoloadshedding
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wereaprivatecompany.
The cost of taking a $600million investment risk in LNGwould have amounted to three
pesewasperkilowatt-hour(Kwh)onelectricityforfiveyearstocoverinvestmentandinterest.
ThisisfarnegligiblecomparedtowhatGhanaiansarepayingtoday,followingtheredemptive
measure to rescue theenergy sector through the institutionalisationof theEnergySector
Levies Act (ESLA). The ESLA imposes levies on electricity consumption to the tune of 3
pesewas/Kwh,andonpetroleumproductstothetuneof28pesewasperlitreoverafive-year
period.Thesecometoatotalof31pesewas.TheindecisiontobringinLNGthereforeimposes
anavoidableextraburdenof39pesewasonconsumersofelectricityandpetroleumproducts.
4.0 GassupplyscenarioandtheneedforLNG
In2015itbecameincreasinglyclearthatdomesticsourcesofgasremainedinadequateinthe
mediumtolongtermevenwiththeadditionofTENandSankofagas.The2015gasmasterplan
putexpectedtotaldomesticsupplytopeakaround300mmscfdin2020whentheMTAfield
comesonline(figure1).Butthisisexpectedtodeclineuntil2030whensupplyisexpectedto
riseagainuponintroductionoftheJubileeandTENblowdown.
Figure1:DomesticgassupplyscenarioinGhana
Source:GhanaGasMasterPlan2015
The government had a renewed commitment to facilitate private investment in LNG to
augment domestic sources. But again, the assumption still lingers that by 2018, the total
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domesticgassupplycouldexceed300mmcfd.TheSankofafieldisexpectedtoproducethe
largestvolumeof180mmscfdwhiletheJubileegascouldstabiliseintheregionof100mmscfd,
withadditional50mmscfdfromTENfields.Thesedomesticsourceswillbeenoughtopower
time-of-use projected demand from thermal plants in 2018 (assuming expected gas
productionfromthedomesticproducingfieldsarerealized).Also,theriskposedbypotential
supplyofcontractedvolumefromNigeriaunderthetake-or-payarrangementinjectsmuch
nervousnessintothedecisiontoprocureLNG.
GRIDCoprojectsthatin2018,thedemandforelectricitywillbeabout2600MW,whichwill
largelybemetbyhydroandthermalsources.Aspresentedinfigure2,electricitydemandis
expectedtogrowovertheperiodbetween2018and2022.Hydroisprojectedtosupplyan
annual average of 1,120MWduring that period. Thismeans that thermal generationwill
significantlyaccountforthedifferenceindemandgrowthwhichwillrisefrom1500MWin
2018to2700MWin2022.Thisindicatesthatsecurityofgassupplyis importanttoensure
that the thermal plants can generate the needed power, at the cheapest cost, to meet
demand.
Figure2:ProjectedElectricityDemand,2018-2022
Source:GRIDCo,20173
3PresentationatGhanaEnergySummit,2017
1120 1120 1120 1120 1120
15262008
23422592 2708
0
500
1000
1500
2000
2500
3000
3500
4000
4500
2018 2019 2020 2021 2022
ProjectedElectricityDemandfrom2018to2022
HydroAverageSupply Time-of-useThermalDemand
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Giventheuncertaintyinthegassupplymarket,boththeEnergycommissionandGRIDCohave
recommended the importation of gas through LNG facility. ACEP believes this
recommendation is accurate to the extent that the three domestic sources will still not
provideenoughsecurityofsupply,andNigeriagasstillremainsunreliableandarisktothe
economicfortunesofthecountry.Ifoneofthedomesticfieldsundergoesmaintenancefor
example,therewillbesignificantvolumereductioninsupply.
5.0HowmuchLNGisrequired?
ACEPhasbeenmonitoring therenewedcommitmentbygovernment to importLNGsince
2015. In this process the Centre conducted gas needs assessment of the country and
cautionedthatthetrendindomesticgassupplyrequirednotmorethanoneLNGcontractby
government. At the time, governmentwas considering two LNGprojects using FSRU; the
WestAfricanGasLimited (WAGL)project (sponsoredbySaharaandtheNigerianNational
PetroleumCorporation(NNPC)),andtheQuantumPower(QPR)project(sponsoredbyajoint
ventureinvolvingUKandGhanaianinvestors,andGNPC).TheWAGLproposedtosupply180
mmscfperday,whilstQPRproposed250mmscfperday.Parliamentsubsequentlyapproved
theWAGLprojecteventhoughthecosttothenationwashigherthanthatofQPR.
The GNPC also entered into another agreement with Kaheel Investments, a company
registeredinDubai.ThiswasbafflingtotheextentthatGNPCisinapartnershipwithQPRto
supply the same product against the reality that Ghana needed only one LNG project.
However,withachangeingovernmentin2017,theKaheelprojectseemstohavedissipated
withthetransitions.
The threeprojectswillbe remembered for thecontroversy thatensuedafterHonourable
BoakyeAgyarko,currentMinisterforEnergy,insistedathisvettingthatGhananeededonly
oneLNGprojectandyet, thepreviousgovernment signed three. Theministervindicated
ACEP’spositionandwasthereforeexpectedtoinitiateprocessestoensurethatonlyoneFSRU
wascontractedwithdueregardforvalueformoney,capacityoftheinvestortoinvestinan
LNGfacility,andtheriskstogovernmentfinances.Theprocessoftakingthedecisionhasbeen
slow,butperhapscompensatedforbythesavingsseenbythecurrentprocessesofreviewing
thecontracts.ACEPcanconfirmthatfacility-use-chargesseenonrevisedproposalssentto
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the ministry presents annual savings of $15million and $63million on QPR and WAGL
respectively. Currently another company, Blystad Energy Management, has joined the
competitiontoincreasethenumberofcompaniestofour.
6.0 BriefsonthefourLNGprojects
Theanalysisissequencedonthetimethecompaniesapproachedgovernmentoranagency
ofstate.
6.1 QuantumPower(QPR)Project
Thisprojecthadinitial20-yearperiodforamortizationwhichhasbeenrevisedto10yearsin
responsetothedirectiveoftheMinistrytolimitthecontractperiodfortheproposalsto10
years.ItisaBuild,Own,OperateandTransfer(BOOT)arrangementbetweenQuantumPower
(QPR)andGNPCwhichwillseetheinfrastructuretransferredtoGNPCafterthecostofthe
projectisamortized.
TherequirementonGhanaisforGNPCtoofftaketheuseofanFSRUwiththeflexibilitytobe
active in the procurement of LNG either through GNPC’s own arrangement, or an
arrangement between the government of Ghana and governments of LNG producing
countries.
QPRisproposingafacilityuserchargeof$1.3perMMBtufora10yearlevelizedvolumeof
250mmscfd.Thisconstitutes$0.17reductionoftheinitialproposalof$1.47onthe20-year
timescale,translatingtoanannualsavingsof$15.5million.Theinitialsitingoftheprojectat
12kmoffshorehashoweverbeenreducedto5kmoffshore.
6.2 WestAfricanGasLimited(WAGL)Project
ThisprojectissponsoredbySaharaEnergyandTheNigeriaNationalPetroleumCorporation
(NNPC).ThisprojecthasacompositearrangementforthesupplyofFSRUandLNG.Theinitial
proposalbyWAGLhasbeenrevisedfortheprovisionofFSRUfrom$2.2perMMBtuto$1.5
perMMBtu. This translates into a savingsof about $63million annually on their revised
project.WAGLgotparliamentaryapprovalforaGasSalesAgreement(GSA)withgovernment
inOctober,2016whichlocked-inminimumLNGpriceof$7.15perMMBtuindexedagainst
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Brentcrudeoil.TheformulaapprovedbyparliamentstipulatesthatLNGpriceswillbeequal
to$7.15ataBrentpriceofbelow$40/bbl.WhenBrentPriceisbetween$40and$80/bbl,LNG
pricewillbe8%ofBrentplus$3.98.WhenBrentisabove$80/bbltheLNGpricewillbe10%
ofBrentplus$2.35.TheWAGLprojecthasalsobeenconvertedintoaBOOTprojectinthe
currentproposaltoallowgovernmenttoowntheFSRUafter10years.
6.3 TheKaheelGroupProject
GNPC entered into another agreement with the Kaheel Terminal Investment (owned by
ownersoftheAmeriGroup)toprovideanotherLNGfacilityusingFSRUinthewesternRegion
ofGhana.Thisarrangementissurprisinginlightofthefactthatallanticipateddomesticgas
supplyarelocatedintheWesternRegionandexceedsthegasrequirementofexistingpower
plants.Notwithstanding,GNPC,ceasedwiththerealitiesofthegassupplyscenario,entered
intotheKaheelcontractinOctober2016.
ItisclearfromtheactionoftheMinistryofEnergyinrecenttimesthattheKaheelprojectis
notoneoftheoptionsbeingconsidered.ACEPwillthereforeskipanalysisofthedetailsfor
thisagreement.
6.4 BlystadEnergyManagement(BEM)Project
The addition to the number of companies interested in delivering LNG is BEM. It is a
partnershipbetweenBEManditslocalPartner,WestCoastGhanaGas(WCGG).Thesolution
proposedbyBEMissimilartothatofWAGLintermsofsitingandLNGprocurement.BEM
proposes locating its facility at the Tema Port. The technology however differs in
configuration.BEM’ssolutioncomprisesoftwovesselconfigurationofFloatingRegasification
Unit (FRU)andFloatingStorageUnit (FSU).Thismeansthatatanytimetherewillbetwo
vesselsdockedattheport,andathirdvesselduringdeliveryofLNGintotheFSU.Thiswill
requiresignificantexpansionofthePorttoprovidetherightmanoeuvrability,andlimitthe
impactonporttraffic.
Thepricing forBEM isalsocomposite,proposing to supplyequipment (FRU/FSU)and the
commodity.Thepriceforfacilityuseisquotedat$1.38perMMBtuwhilethatofLNGsupply
isarrivedatusingBrentindexedformula.AtaBrentpriceabove$60theLNGpricewillbe
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12.5%ofBrentpriceminus$0.82perMMBtu.AndataBrentPricebelow$60theLNGprice
willbe$7.5%ofBrentpriceplus$2.18perMMBtu.
7.0 KeyDynamicsofthe3ProposedOptions(QPR,WAGLandBEM)
Thetablebelowexplainsthekeysubtletiesthatdefineeachoftheproposals,givenalevelized
tenureof10-yearsand250mmscfdsupplyvolume.AlltheprojectsalsoprovideforaBOOT
model.
Table1:ComparisonamongthefourLNGprojects
QPR WAGL BEM CommentsSiting The FSRU will
be sited 5km
offshoreTema,
moored in
position to
supply LNG
through
undersea
pipelinetothe
shore.
TheFSRUwillbe
berthed at the
Tema Port,
requiring Deep
dredging and
construction of
Breakwater.
This is similar to
WAGL’s
requirementand
may require
biggerexpansion
of the port to
provide
manoeuvrability
for a third
vessels during
LNGintake
Siting at the Port is a
more popular and
conventional solution in
the use of FSRUs.
However, out of Port
solutionsaretestedand
viable. The choice of
either In-Port or
Offshore site should
rather be informed by
contextual
determination. There is
currently a study by
Genesis and Technip
whichsuggeststhathigh
pressure gas cannot be
safely evacuated from
thebuild-upareaof the
Tema Port. GE’s Early
Power was denied the
opportunitytoconstruct
their LPG pipeline for
same reason. The
expansion work for the
FSRU could provide
benefits for other uses.
However, this may not
be necessary
considering that siting
the FSRU in the Port
could be risky, and also
that there is already an
ongoing $1.5 billion
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expansionofthePortby
Ghana Ports and
Harbour Authority
(GPHA) which will
provide similar benefits
that an FSRU-based
expansionmaybring.
Pricing-EquipmentUse
$1.3 $1.5 $1.38 QPR provides the
cheapest option
followed by BEM and
WAGL. However with
BEM’s pipeline cost not
known yet, its price
couldenduptobemore
expensive at the final
estimation.
LNGPrice QPR does not
offer LNG
supply.
However
GNPC
presented a
priceof$5.854
to AfDB from
its preliminary
negotiations
WhenBrentis
<$40/bbl,LNG
Price=$7.15.
WhenBrentis
between$40
and$80/bbl,
LNGPrice=$8%
of Brent +
$3.95; and
when Brent is
greater than
$80/bbl.
LNG Price =
10% Brent +
2.35. Thereforeintoday’stermsLNG will beequal to$8.10925
When Brent is
above $60/bbl,
LNG Price =
12.5%Brent + (-
0.82),
and when Brent
is equal to or
below$60/bbl,
LNGPrice=7.5%
Brent+2.18,
In today’s termsLNGpricewillbe$6.079256
QPR provides the
optionality for
government to
negotiate for its LNG
supply. The other two
provide composite
facility and commodity
agreement. The
composite arrangement
increasesthetakeorpay
risk for Ghana on both
LNG procurement and
facilityuse.
DeliveredLNG
$7.15/MMBtu $9.61/MMBtu $7.46/MMBtu QPR and BEM present
lower figures of $7.15
and $7.46 respectively.
ThisprovidesQuantuma
$0.31/MMBtu price
4ThispriceisusedfortheanalysisthoughpricesarecheapertodaythanquotedbyGNPCin
December2016.5BasedonBrentpriceof$51.99asofAugust2,2017asreportedbyBloomberg
6ibid
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advantage over BEM,
representing an annual
savings to Ghana of
$28.3 million. However
Brent indexation
subjects the pricing of
LNG to the volatility of
the crude oil price and
doesnotaccountforthe
analysis in section 8.0
below.
Risk/liabilityover a10yearperiod
1,186,250,000
8,769,125,000
6,807,250,000
The composite
equipment and LNG
supply heightens the
take or pay risk for
Ghanaat$8.8billionand
$6.8billiononWAGLand
BEM respectively. The
$1.2 billion risk on the
QPR allows government
to negotiate less risky
government to
governmentLNGsupply.
Timing ofFirst Gasafterfinancialclose
Quarter 3 in
2018
Quarter 3 in
2018
Quarter 1 in
2019
The timing for the In-
Port solutions look
conservative given the
dredging and
breakwaterconstruction
required. Especially
when the studies to
confirm the extent of
work needed have not
been done by BEM and
WAGL.
Source:ACEP,20177
8.0 WhyGhanaNeedsaFacilityUseAgreement(FUA)andNotacompositeFUAandLNGsupply.
GhananeedstheflexibilitytotakeadvantageofthefallingLNGpricetrend.Theindexationof
gaspricetotheBrentdoesnotreflecttheglobaltrendintheLNGmarket.LNGpriceshave
beenfallingtodefyprojectedincreasebyIMFandtheWorldBank.Japanwhichconsumesa
7ACEP’scompilationbasedonprojectproposalssubmittedbythethreecompaniestothe
Government.
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thirdoftheglobalLNGrecentlyoutlawedLNGresalerestrictiontoallowtheirimportersto
sellcontractedLNGsupplyonthemarket.This is in responsetocurrentmarketdynamics
wherenewsuppliesfromUSandAustraliaareinfluencingpricereductions.AgainQatarisset
to increase LNG exports to 100 million metric tons from 70 million metric tons against
projecteddemandstagnation inEurope.At thesametime, theUnitedstates is increasing
exportsfromshalegasrevolution.ThedevelopmentinAfricaevensupportsanopenplanning
fortheprocurementofLNG.Tanzania,MozambiqueandSenegalwillsooninjectmoregas
ontothemarketthroughLNG,giventhebigdiscoveriesinthosecountries.
Itisthereforenotjustifiableforgovernmenttoapprovealocked-inLNGpricefor10years.
Thecommodityisassumingamarketofitsownandthereforepricebenchmarkingagainst
Brent crude is discouraged. Ghana should therefore rely on Government to Government
negotiationstosupportGNPCtoprocureLNGcheaply.
9.0 Recommendations
ACEP appreciates the challenges the Government of Ghana has faced over the years in
decidingontheneedforanLNGfacility.Thegassupplyscenariodefinitelyposessomerisk
which demands very careful analysis onmitigationmeasures. ACEP thereforemakes the
followingrecommendationstothegovernmentinitsassessmentoftheneedforLNG:
1. LNGisneeded-GhananeedsLNGtoprovideextragassupplysecurityevenin2018,
when local supply could be just enough for the time-of-use demand scenario.
Indigenous supply is still not diversified enough to provide confidence for
uninterruptedsupplyfromthefields.
2. NigeriaGas -Weobserve that gas supply fromNigeria does not hold any reliable
promise. The suppliershavenotdeliveredon foundational volumeover theyears,
largely influenced by growing demand for gas in Nigeria and export of LNG. The
current supply of only about 9mmscfd doesn’t give any assurance for the future.
NNPC,whichisamajorplayerintheWAGPP,isnowexploringopportunitytoexport
LNGtoGhanathroughWAGL.Thisarrangementcouldbethedeathwarrantforthe
WAGPiftheLNGbusinesspresentshigherrevenuetoNNPCthanthroughtheWAGP.
Government should therefore take the necessary steps to revoke the take-or-pay
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agreementundertheWAGPwithNNPCtorelieveGhanaofsomerisksassociatedwith
theimportationofLNG.
3. LocationoftheLNGFacility-TherearecontentionsaboutthesuitabilityoftheTema
PortforthesitingoftheLNGfacility.Regardlessofhowremotetheriskmaybe,ACEP
recommends that siting of the facility outside the Port should be considered. The
reasonisthat,thePortisamajorrevenuebasketforthestateandanyactivitythat
risks the size of revenue from the Port should be considered carefully. The fiscal
challengesofthecountrywillworsenifthePortdoesn’tfunctionasrequired.Thereis
noreasonforPortactivitiestosufferwhenthereareviablealternatives.
4. GovernmentshouldreservetherighttoprocureLNG–thecurrenttrendintheLNG
market presents an opportunity forGhana to take advantageof the falling prices,
negotiatestableprices,notbesubjectedtothevolatilityinthecrudeoilmarket,and
ineffectmakegreatersavings.
5. Scalability-GasdemandscenarioforGhanaislargelyinfluencebythepowersector.
This leavesthecountry largelyunabletoestimatefuturedemandbyothersectors.
Against the much talked about industrialisation agenda of the government, the
procurementofLNGfacilityshouldbeabletoaccountforgasneedsthatcannotbe
assessed in the short term. The remedy is to ensure that the facility thatwill be
contractedhasthepotentialtoscaleupsupplywithattendantbenefitsfromeconomy
ofscaleratherthantwoLNGfacilitieswhichwillbemoreexpensive.Scalabilityisnot
beingconsideredcurrentlyunderanyoftheproposals.
6. Managingtheriskofpotentialgasglut-theGhanaGasMasterPlanidentifiesother
potentialindustrialusesofgas,includingthetextile,cement,steel,paperandfertilizer
industries.Thereistheneedforaproactivepolicyshifttoactivatethosedemands.
This will align with Ghana’s industrialisation agenda and ensure that gas drives
industrywithitsclimatebenefits.
7. QPR is recommended- on the strength of the threemain proposals and available
informationusedforthisanalysis,ACEPisoftheviewthattheQPRprojectpresents
greatervalueonthestrengthsofprice,siting,andoptionalityforGhanatoprocureits
ownLNG.
8. Parliamentsshouldseekindependentopiniononcontracts-thesavingmadebythe
MinistryofEnergyontheWAGLcontractisagoodindicationthatparliamentneeds
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independenttechnicalreviewof longtermcontracts.WAGLhasreduced itsfacility
usefeefrom$2.2perMMBtuto$1.5perMMBtu.ThisnewproposalsavesGhana$63
million annually (or $630million for 10 Years) on the use ofWAGL’s FSRU if it is
allowed to go ahead. The implication is that parliament could not assess the cost
burdenagainstthemarketvalueoftheproject.ThecompositesavingsonEquipment
supplyandLNGcouldbeintheregion$1.8billionand$2.6billionwhencomparedto
theotherproposals.
9. IntroducecompetitivebiddingforfutureLNGcontracts-ACEPproposesthatfuture
contractsshouldbesubjectedtotheProcurementActtoensurethatthereisfairness,
transparency,andcompetitionsforsuchcontracts.Thatway,thecompanywiththe
bestvaluetoGhanawillbeselected.
10. Conclusion
ACEP is of the view that the financial risk of importing LNG is lower than the risk of not
importingit.Ghana’senergysectorissufferingtodaybecausethecountrylackedtheboldness
totakerisksatthetimesomeanalystsestimateddomesticsupplyofgaswouldbeenoughfor
powergeneration.LNGwillprovidegreatersecurityofsupplywithdiversityofsources.Itis
inthisrespectthatACEPrecommendsthatthegovernmentshouldfacilitatetheprocurement
ofanLNGfacility,criticallyconsideringthescalability,timing,cost,andsitingoftheproject.