…even as GNPC readies to begin importing gas
Seven years after Ghana’s first ever natural gas processing plant commenced operations, Ghana Gas is planning to construct a second gas processing plant and there is a confident, well placed expectation that it will result in similarly transformational effects as the first one has had on Ghana’s economic fortunes.
The planned second processing plant will as much as double Ghana’s gas processing capacity and this will be crucial towards enabling the country to maximize the benefits of its huge – and still growing – natural gas endowment. Currently Ghana has the capacity to produce 365 million standard cubic feet per day (mscfd) of gas from two of its three operational oil and gas fields, these being Jubilee and the TEN cluster which produce wet gas; the most recent field commissioned, Sankofa Gyaname, directly produces dry gas. However, the Atuabo gas processing plant’s capacity is less than half of this, at 150 mscfd. This has restricted actual wet gas throughput to 130 mscfd, which is almost the full installed gas processing capacity Ghana currently has.
A new processing plant would eliminate Ghana’s retained dependence on sometimes irregular gas imports from Nigeria through the West African Gas Pipeline and even more importantly would enable the country to substitute even more of the imported diesel oil still used as feedstock for power generation with gas which is a cleaner, cheaper, locally sourced form of energy. But most importantly of all it would enable Ghana to energize crucial projects and activities that it cannot yet because of inadequate gas delivery.
The planned new processing plant, which will be located to the north of the Atuabo plant, is expected to be up and running by 2024; its construction and commencement of operations being executed much faster than the first one because this time around a lot of the requisite infrastructure, such as pipelines, utilities, roads and the likes are already in place, put there to operationalize the Atuabo plant nearly a decade ago.
The impending new gas processing plant vividly illustrates just how successful Ghana’s upstream gas industry is proving to be with regards to both the demand it is generating and the sheer potentials it offers going forward. Thus, while Ghana could arrange a similar financing structure for its construction as the one used for the first one – with loan financing from China being the primary mode, utilizing the technical skill of that country’s Sinopec – government is rather looking to leverage on the local content and participation Dr Ben Asante, the current CEO of Ghana Gas, has masterminded for the industry. To this end the new plant will involve a private partner which will finance and construct the plant, which will subsequently be co-managed by the private partner and Ghana Gas itself, before ultimately it is fully transferred to the State. To be sure, Ghana now has the capacity; since becoming CEO of Ghana Gas Dr Asante has successfully replaced the 56 Chinese technical experts – primarily engineers – with Ghanaians and the company and its activities are now run entirely by indigenes. Instructively, since this move in 2017, there has been no accident or operational failure under this new crop of young Ghanaian engineers, drawn predominantly from institutions in the oil and gas industry such as TOR and BOST and trained in upstream gas operations under the expert supervision of Dr Asante himself.
The Atuabo plant is the result of a US$1 billion investment made through the then newly established Ghana Gas and it has changed a fundamental aspect of the structure of the country’s economy which has subsequently improved its performance tremendously. That investment – funded by a US$850 million loan from the Chinese Development Bank and US$150 million in counterpart funding by the Government of Ghana itself – created a gas processing plant at Atuabo in the Western Region and the requisite infrastructure to transport the gas by offshore and onshore pipelines from the country’s offshore oilfields to the plant and from there to power generation facilities in that part of the country where natural gas has since replaced heavy diesel oil as their primary feedstock.
The infrastructure comprises : Offshore gas export pipeline, which consists of a 12 inch diameter 58km long subsea pipeline, transporting dense-phase gas from the Jubilee FPSO to the Gas Plant; the Gas Processing Plant (GPP) itself at Atuabo in the Western Region; Onshore gas pipeline, which consists of a 20 inch diameter 110 km pipeline, transporting sales gas from the GPP to an existing Thermal Power Plant at Aboadze; and a LPG truck-loading gantry located approximately 2.5km from the GPP near Anokye.
Ultimately this has cut Ghana’s import bill for diesel oil drastically enabling the country to turn its erstwhile trade deficits in trade surpluses since the end of 2016 without having to engineer a huge increase in export revenues; which in turn has served as a pivotal contributor to the cedi dollar exchange rate stability which the country enjoys till today.
But also pivotal in the potential to fast track the second plant is the current chief executive of Ghana Gas, Dr Ben K. D. Asante, inarguably the most globally accomplished technical gas expert the country has ever produced, with over three decades of experience spanning both North America and Africa and whose skills have been sought and used by some 23 different countries during a sterling professional career.
Having achieved his indigenization vision, Ghana Gas is now looking to make gas do three key things for Ghana. One of course is its use as feedstock for power generation through the national grid, where it is already progressively becoming the primary feedstock for thermal energy generated by Volta River Authority and Independent Power Producers alike.
“Gas is cheaper and cleaner than solid fossil fuel and so it represents the best way forward for Ghana” asserts Dr Asante. “With Ghana’s industrialization growing rapidly, through initiatives such as one district one factory, and market opportunities for Ghana’s manufactured goods expanding rapidly too, through the African Continental Free Trade Area, the use of gas for power generation holds the best potential for adequate power at internationally competitive cost for industry.”
But Ghana Gas is looking beyond this towards other uses too. One is that it can make certain strategic industries viable in Ghana for the first time. Indeed, Ghana Gas has already enabled the emergence of a local ceramics industry, providing the requisite huge energy requirements for heating at economically viable cost. Now it is looking at how Ghana Gas will enable the establishment of the national fertilizer production company the country aspires to have by facilitating the production of nitrate pellets, and which would save Ghana over US$500 million in fertilizer import costs every year.
It is also looking to use Ghana’s gas to facilitate the growth and development of the country’s iron and steel industry as this will be key in enabling industrial production, from the automobile industry to machine parts.
But perhaps an even more potentially pivotal strategy over the shorter term is the plan to use Ghana Gas to support the country’s extractive industry. Gold mining for instance, Ghana’s biggest export revenue earner is highly capital intensive and for long the industry has complained about inordinate energy costs that slim its margins, creating the potential to render Ghana uncompetitive as an international mining investment destination. By lowering its energy costs, intends to make Ghana more, rather than less competitive in this regard.
But an even more crucial intention is to use Ghana Gas to ensure that government’s ambitions of creating an integrated aluminum value chain is realized. It is instructive that Ghana lost the strategic advantages created by VALCO because of higher power costs which made production economically unviable.
“Government’s ongoing efforts towards creating a full scale value chain from bauxite mining to the manufacture of aluminum products are predicated on competitively priced energy and Ghana Gas aims to make sure that energy is made available all along the supply chain” he assures.
Then there is the third use of gas, as envisaged by Dr Asante, one which he is personally invested in because of its potential benefits to the economy and the citizenry: the powering of the vehicular sector with gas to bring down transport costs. Here he envisions the use of locally sourced, clean and relatively cheap compressed natural gas to replace diesel oil to run a wide range of transport modes from the railway system now under development to tricycles which are becoming increasingly popular to as light freight carriers and which have the potential to replace controversial motorcycles as an efficient mode of passenger transport too.
Fulfilling this wide vision however requires improving Ghana s’s cash flows which in turn requires attention from two directions.
One is pricing. “Ghana can do better with regards to pricing” admits Dr Asante. “This is the jurisdiction of the Public Utilities Regulatory Commission (which regulates the tariffs at the end of the power generation value chain) but I think they realize what needs to be done.”
The other is actual cash flow, which is being impeded by the chain of indebtedness which flows backwards from the Electricity Company of Ghana, which is owed by its customers, to GRIDCO which handles transmission, back to power generation companies – both VRA and the IPPs – and ultimately to Ghana Gas. The waterfall mechanism for allocation of payments available has ameliorated the situation somewhat but ultimately, indebtedness needs to be removed altogether.
But a new controversy has erupted out of the latest initiative by the Ghana National Petroleum Corporation to construct a new regasification plant located at the Tema Liquefied Natural Gas (LNG) Terminal, which GNPC asserts will safeguard the country’s future energy needs and usher in an era of cheaper gas.
The Floating Regasification Unit (FRU) of the terminal arrived in the country on the January 7 2021 and is the first of its kind in sub-Saharan Africa. It has, however, been met with criticism by industry experts and CSOs along the energy sector for having the potential to increase the menace of unutilised gas and negatively affect development of local gas resources.
But GNPC’s CEO, Dr. Kofi K. Sarpong, justifying the investment in the new facility, insists it offers an opportunity to secure the country’s future energy needs by increasing the energy mix for power generation and industrial use, as well as fuel for vehicles.
“The new LNG is cheaper than Sankofa and it is cheaper than the gas coming from Nigeria although prices can change anytime but as I speak, the formulation is cheaper than the one coming from Sankofa. The only ones which are cheaper are Jubilee and TEN but they cannot give you the volumes you need because of production constraints and challenges from the Ghana Gas plants,” he asserts.
Buttressing his point, he explains that gas demand has gone up significantly in the past two years, from about 211 mscfd in 2019 to 296 million mscfd in 2020 and is expected to exceed 300 million mscfd in 2021.
This level of growth, GNPC insists, cannot be matched by local production alone. “People make the mistake that we are producing so much gas domestically and therefore, there is no need for LNG. What GNPC is doing is highly competitive and in four years, demand should outstrip the current supply” asserts Dr Sarpong.
GNPC also argues that the new LNG facility will expand the energy mix for power generation, pointing out that there can be unexpected technical challenges that curtail local gas production, a situation which indeed has happened in the past.
Dr Sarpong points out that “in Tema where we have installed the LNG plant, the demand for gas is 250 million mscfd, which explains why we still take from Nigeria and from the western Ghana to add up to gas requirements in Accra.
“There are power plants with installed capacity of about 1500MW and that will need about 260 mscfd. We cannot get that alone from the West, we have to even transport some along the West Africa Gas Pipeline which costs us more money and it is a major issue in terms of cost. When you add that to the Sankofa gas, it is way too expensive,” he indicated.
Explaining further, Dr. Sarpong explains that the argument that Jubilee gas is cheap will soon expire because when the field’s foundation volumes, which are free to the country, are finished, in about two years from now, Ghana will have to start paying for it.
A number of CSOs including the Institute for Energy Security (IES), have also expressed concerns that the Tema LNG Terminal could worsen the unutilised gas menace, which the country pays about US$700 million for. “If you bring in gas on pay-or-take basis, it will definitely increase the burden on government but ours is not like that,” Dr. Sarpong assures.
“We have carefully agreed with the suppliers to start from a lower level of about 75million cubic feet. In the second year, we will move to 125million cubic feet when we must have identified enough users to absorb that volume.
In the third year we will move up to 150 million and in the fourth we will go to 170 million and by the fifth year, we will be doing about 200 million. So, we are using a more cascading kind of approach where you start from a lower level and then build up as demand increases,” he noted
The facility has potential to be scaled up to process 600 million standard cubic feet of gas a day but the actual contracted capacity to the country is 250million cubic feet of gas, according to GNPC. The gas will be supplied by Shell which controls about 30 percent of the global LNG market.
While the controversy rages however, some industry analysts predict that competition between Ghana Gas and GNPC is brewing and this will drive prices downward, thus lowering power generation costs to the ultimate benefit of industry and households alike.
With GNPC’s entry into the gas market as impending competitor Ghana Gas is looking to lower costs. Its replacement of Chinese technical staff from Sinopec with entirely indigenous engineers and the likes is saving the company some US$3.5 million a month. Instructively, the issue of technical capacity is being handled largely by Dr Asante himself through his impactful commitment to local content and participation which is churning up a new breed of indigenous engineers and other technical staff who are specializing in meeting the needs of the upstream gas industry.
Financing is also being handled too with government determined to get its pricing structures right and the waterfall mechanism ensuring that Ghana Gas at least gets enough cash flow to keep it going, which will reduce its bridge financing costs. Importantly, using a public private partnership rather than a bilateral development partner loan to finance the next gas processing plant will force government to adopt a sustainably viable price structure right from the get go.