Oil closes in on gold

as Ghana’s biggest export revenue earner

With crude oil prices rebounding on the global markets, petroleum exports are closing in on gold exports as Ghana’s primary source of foreign exchange earnings; and increasing oil export revenues could not have come at a better time for the country as a combination of the strengthening US dollar and rising foreign debt servicing obligations have been putting heavy pressure on the cedi exchange rate.

Data released by the Bank of Ghana at the weekend reveal that although gold is still Ghana’s biggest export revenue earner, the value of crude oil exports is closing in rapidly. For the first ten months of 2018 (January to October), Ghana’s oil exports amounted to US$3,830.1 million, roughly four -fifths of the US$4,708.1 million the country earned from gold exports over the period. This represents a major change from the situation during the corresponding period of 2017 when Ghana’s oil export revenues of US$2,314.2 million were less than half of the US$4,837.2 million earned from gold exports.

The rising quantum of oil export revenues to Ghana is the result of both a price surge on global markets and increasing production, as the resolution of the maritime boundary dispute with Cote d’Ivoire in Ghana’s favour is enabling increased production from the Tweneboa Enyenra Ntomme (TEN) oilfield, and output from the latest field, Sankofa Gyename gets closer to full capacity.

The price of Brent crude oil, which is similar to Ghana’s premium quality light crude oil in texture, has risen by 40.2% over the 12 months to October 2018 to reach US$80.6 per barrel by the end of that month. This is nearly three and a half times the 11.9% rise in the oil price over the previous 12 month period.

Conversely, the gold price on international commodity markets is in decline, falling by 5.2% over the 12 months up to October this year, to reach US$1,214.0 per ounce, down from US$1,280.6 per ounce a year earlier. This contrasts with a 1.01% rise in the gold price over the previous one year period. Furthermore, while production by large scale gold producers in Ghana has been more or less steady over the past two years, the ban on small scale mining has taken a significant toll on overall production since it was introduced around the middle of last year.

Going forward, Ghana’s oil export revenues are expected to get even closer to those from gold and possibly overtake them. This is in part because ongoing geo-political tensions in the Middle East have the potential to send oil prices much higher than where they are now. The re-imposition of sanctions by the United States on Iran and a possible showdown between Saudi Arabia (the world’s biggest oil exporter) and Europe over the murder of journalist Adnam Khashhogi could lead to supply cuts and consequent price increases on global crude oil markets.

On the other hand, America’s accelerating economic growth accompanied by the strengthening of the dollar stands to depress gold prices further as investors move out of the precious metal and into dollar denominated assets.

Economists in Ghana are pointing to all these considerations as reasons why it is imperative that government strives to prevent the country’s upstream oil industry from becoming an enclave sector like what has happened with the gold mining industry over the past century. Indigenous enterprises will want a bigger share of contracts and other revenues emanating from Ghana’s upstream oil and gas industry as it progresses towards becoming the country’s biggest foreign exchange earner.

By Toma Imirhe