Oil company traps Ghana in long-term deal to take more gas than it needs

Nov 29, 2020 News

– Int’l Watchdog warns Guyana to take heed

Kaieteur News – An independent policy center called Institute of the Americas is warning Guyana to be careful as it negotiates its deal with ExxonMobil and its Stabroek partners for the gas-to-shore project. Ghana’s experience with its own gas-to-shore project, the non-profit entity pointed out, has found itself trapped in a long-term agreement with oil companies which resulted in the African nation having to pay for 90 percent of its own gas and scramble to find uses for it.
In the Institute’s report titled, ‘Guyana’s Gas-to-Power Potential,’ University of California San Diego graduate student Kathryn Hillis noted that Ghana, like Guyana, suffered power outages. It also wanted to reduce power costs, lower emissions and make electricity services more reliable. That was addressed when Ghana approved the Sankofa gas project in 2015. According to the World Bank, since the startup of the project, Sankofa resulted in the provision of power to 1.6 million households, decreased oil imports by 12 million barrels a year, and reduced carbon emission by 1.6 million metric tons.
Notwithstanding the benefits, there are challenges Ghana is now struggling with. The World Bank partially funded the project, whereby the Ghana National Petroleum Commission (GNPC), and Eni and Vitol drilled wells and interconnected a gas pipeline to the country’s pipeline network and with existing power plants.
Ghana signed a long-term take-or-pay Power Purchase Agreement (PPA) with gas and power suppliers, through which it would have to pay for 90 percent of the produced gas from the field, no matter the demand, Hillis wrote.
“In an environment of frequent power outages where a large portion of the population lacks access to electricity, this seemed like an ideal arrangement,” she said. However, the market is now severely oversupplied, with the government paying $500 million annually for unused power. Ghanaians are also reported as arguing that the tariffs in the Power Purchase Agreement are not competitive, causing the government to overpay for power.
Recognising that the energy sector is not financially sustainable, the current administration responded by creating the Energy Sector Recovery Program (ESRP) to identify the policies and actions needed to recover the sector financially. The programme would have to find uses for all the extra gas and work on ensuring fairer agreements in the future.
Part of the programme involved having Cenpower, a major power company in Ghana, switch its primary fuel consumption from light crude to natural gas. Hillis said that Ghana will need to do a lot more to find offtake sources for the gas because the company’s switch is nowhere near enough.
“Clearly, Guyana must seek to avoid Ghana’s mistakes with its PPAs.” Hillis said. “Despite the numerous benefits of using gas for power generation, the project could become a negative for the country if not executed properly.”
Guyana’s Gas-to-Shore Task Force is being headed by Winston Brassington. The Government, according to Minister of Natural Resources, Minister Vickram Bharrat, intends to finalize negotiations by 2021-year end. The project will draw associated gas from the Liza Phase One well.

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