Overview

Ghana’s oil and gas industry has recently become the focus of global interest. In the summer of 2007, Ghana’s oil potential first became news, as off-shore exploration yielded commercial quantities of crude and natural gas. As exploration and encouraging discoveries continue, Ghana is positioning itself to become one of the sub-Saharan Africa’s top five oil producing nations[i]. Throughout the oil and gas value chain, opportunities abound as the nation seeks to strengthen its existing downstream petroleum industry and become an exporter by 2015.

2010 Energy Policy of the Government of Ghana:
“The energy sector vision is to develop an ‘Energy Economy’ to secure a reliable supply of high quality energy services for all sectors of the Ghanaian economy and also to become a major exporter of oil and power by 2012 and 2015 respectively.”[ii]

Upstream Activities

Though exploration has been undertaken in Ghana for decades, it wasn’t until recently that adequate capital has been invested into the exploration of Ghana’s oil and gas potential. Ghana has four off-shore sedimentary basins known to hold oil and gas: The Tano Basin, Saltpond Basin, Accra/Keta Basin, and Cape Three Points Basin. These four have been well explored in recent years. The Voltaian Basin, which is on-shore, has yet to be fully explored[iii]. The Ghanaian government has put in a request to expand its continental shelf, which is currently being reviewed by the United Nation’s Convention on the Law of the Sea (UNCLOS). It is likely to be approved and would open up further opportunities for exploration off Ghana’s shores[iv].

The site of the initial commercial oil and gas find is now known as Jubilee Field, and is located in the Tano and Cape Three Points Basins. It is estimated to hold oil reserves of between 800 million and 3 billion barrels. It is also believed to hold substantial natural gas reserves[v]. Countrywide, Ghana is estimated to have gas reserves between 1.5 Tcf and 1.7 Tcf[vi]. Since the Jubilee Field discovery in 2007, additional substantial discoveries have been made. In September 2010, Tullow Oil announced its discovery of between 70 million and 550 million barrels in the Owo field, located nearby the Jubilee Field[vii]. Exploration continues to intensify and it is expected that more discoveries will be made both on and off-shore. This budding upstream oil and gas industry holds great opportunity.

Phase 1 development of the Jubilee Field project is being operated by Tullow Oil with partners KOSMOS Energy, the Ghana National Petroleum Corporation, Anadarko, Sabre Oil and Gas and EO Group Ltd. The project is scheduled to begin pumping oil by December of 2010. Over the following six months, production will increase to 120,000 barrels per day. The crude is light, sweet and of good quality. Tullow Oil reports: “Independent laboratory analysis indicates that the crude has an API Gravity of 37.6 degrees and sulphur content of 0.25 % wt, with no unusual characteristics.”[viii]

Exploration and development of the Jubilee Field has moved quite swiftly. This reflects enthusiasm from both industry stakeholders and the Government of Ghana to see Ghanaian crude come to market. Currently the top investors include Tullow Oil, KOSMOS Energy, Anadarko, LUKoil, and Vanco Energy[ix], Investors expect to face barriers similar to barriers faced in other regional oil exporting countries. Ghana’s upstream petroleum industry requires development. It lacks both human capacity, in the form of skilled labor, and adequate regulatory and political infrastructure. The nation has turned its attention to avoiding the resource wealth curse that has hindered business and development in other settings[x]. The institutionalizing of the needed changes is underway.

Experts agree that Ghana is in a good position to overcome these barriers. Ghana has a stable political system and recent history of good governance. The Government has voiced its determination to insure an environment beneficial to both Ghanaians and business. As of September of 2010, much of the regulatory and institutional restructuring is still to be completed. A Ghana Petroleum Regulatory Authority Bill, a Ghana Petroleum Revenue Management Bill and a Local Content and Local Participation in Petroleum Acclivities Policy Framework have yet to be passed[xi]. It would be premature to count this against Ghana. Government is committed to updating Ghana’s regulations to reflect its new position and to ensure accountability, security and local uplift. Ghana is already a member of the Extractive Industries Transparency Initiative (EITI) due to its mining industry and will be extending the Ghana EITI to its oil and gas sector[xii]. Many industry analysts are optimistic that the country will rise to this new challenge.

To address human capital barriers, Government as well as industry and educational institutions have undertaken extensive efforts to educate the public. Ghana’s tertiary institutions have speedily set up programs to train a Ghanaian workforce for all areas of the oil and gas industry. Government continues to seek assistance in the development of “requisite educational and institutional capacity to support Ghanaian expertise and skills development in the energy sector.[xiii]” Industry leaders, like Tullow Oil, have invested in job creation and infrastructure. Tullow has staffed its current operations in the country with an 85% Ghanaian workforce. It has made substantial investments in port facilities including building new access roads, offices, and warehouses. They also continue to employ local contractors to build new offices, staff housing, a supply base, and a major marine operation[xiv]. Tullow’s example has laid the foundation for a mutually beneficial relationship with the Ghanaian public. In this environment, the potential for job creation and economic lift is high.

Besides being strategically located for oil exportation, current industry regulations are friendly to smaller operators. There are no restrictions on the repatriation of funds, no front end payment requirements, no limit on cost recovery, low rental payments and negotiable royalties and income taxes[xv]. Ghana has positioned itself to become an attractive setting for oil and gas exploration and development. Government recognizes that this is only possible when industry and government operate in manners that serve the interests of all Ghanaians.

Downstream Activities

In light of Ghana’s budding upstream opportunities, Government has encouraged investment in Ghana’s downstream petroleum industry. This is an industry with plenty of room for growth. Development and demand for energy resources go hand in hand. As Ghana’s economy develops, the supply of energy resources has become a bottleneck.Hydropower supplemented by crude and gas importation has been very expensive and inefficient at meeting Ghana’s growing energy needs.Ghana’s downstream oil industry is vital to its economy. Currently, 70% of Ghana’s commercial energy needs are supplied through petroleum products[xvi]. The Ministry of Energy estimates that the market for petroleum products in Ghana will grow by 5.3% annually through 2015, but has the potential to grow at a much higher rate if significant investments are made in infrastructure.[xvii]

Current downstream activities include refinement of crude as well as the bulk and retail distribution of various petroleum products. These products include:  premium gasoline, kerosene, gas oil, residual fuel oil, LPG and premix.[xviii] In 2005, Ghana consumed 1.62 million tonnes of gasoline, kerosene, gas oil and liquefied petroleum gas (LPG). By 2015, it is expected that this market should surpass 2.49 million tonnes per annum. Ghana is one of four countries within West Africa with an oil refinery. The Tema Oil Refinery, also known as TOR, has been processing imported crude since the 1960s. TOR is owned by the Government of Ghana and has a total capacity of around 2 million tonnes per annum. Bulk distribution of petroleum products in Ghana is done through strategic storage depots, pipelines, Bulk Road Vehicles as well as barges on Lake Volta. From bulk storage, products are trucked to retail locations.[xix]

Investments in Ghana’s refining capacity and distribution infrastructure are greatly needed. TOR currently produces 70% of the petroleum products consumed within Ghana. It is estimated that demand actually exceeds TOR’s capacity by between 40-50% if suppressed demand is considered. The country imports more than one million tonnes of petroleum products per annum. Expanding refinery capacity would take advantage of national, regional and worldwide refinery capacity shortfalls. West African countries without refineries consume more than 4 million tonnes of petroleum products per annum. Nigeria has failed to take full advantage of the West African market for both petroleum products and natural gas. Nigeria’s refineries currently operate at less than 50% of capacity due to operational issues[xx]. The West African Gas Pipeline (WAGP) was commissioned in 2008 to move Nigerian gas to consumers in Ghana, Benin and Togo. WAGP has been plagued by delays due to vandalism and fuel quality issues[xxi]. WAGP, which is operated by Chevron, reopened in March 2010 after a year-long outage. With investment in Ghana’s refinery capacity and distribution infrastructure, the country could service a fast growing regional market that is currently facing large supply shortfalls.

Within Ghana, inadequate distribution, storage and transportation infrastructure as well as a limited number of retail outlets have led to ineffective distribution of petroleum products. In Ghana’s rural communities, insufficient infrastructure hinders access. Government has stated its intention to partner with private investors. Public and private investment is needed to extend TOR and to create new refining facilities as well as the expansion of petroleum supply infrastructure. It is estimated that a capital investment of 16 billion USD is needed to develop infrastructure throughout Ghana’s entire energy sector, including petroleum, power and renewable energy[xxii].

Conclusion

Ghana’s gas and oil industry holds great promise. With crude from Jubilee Field breaking the surface and ongoing exploration, Ghana is positioning itself to strengthen its existing industry infrastructure and become an energy exporter. Excellent opportunities for investment abound throughout Ghana’s oil and gas industry. In his address to the 2010 Opportunities Conference in Accra, Deputy Minister Buah states: “It is also the vision of the Government to channel the oil and gas resources to support petrochemical industrial development….Ghana is preparing itself to meet the challenges and opportunities within the industrial chain for many interested Ghanaians and non-Ghanaians in terms of business development.” [xxiii] The environment is right for investment in this developing industry and the potential returns appear limitless.