Ghana’s gas sector continues to face growing challenges, emanating from financial shortfalls, the International Monetary Fund (IMF) has indicated.
According to the Fund, these worsening conditions are exacerbated by infrastructure bottlenecks, and tariffs that do not reflect cost recovery. Also, the problems within the industry in totality adds up to the sector’s woes, especially, in terms of rising debt issues.
Ghana’s domestic gas supply is primarily located in three fields: Jubilee, Sankofa, and Tweneboa–Enyenra–Ntomme (TEN) and some external supply from the West African Gas Pipeline Company in Nigeria. Already, gas supply from these fields are in excess supply and Ghana has not even fully utilized these as a complementary source of power generation in the country.
That said, there is low non-power demand as the country’s power generators and industries consumed just 255 million standard cubic feet per day (MMSCFD) in 2019. Albeit, this quantity consumed is expected to increase to 448 MMSCFD by 2023, indicating that excess supply is likely to grow faster.
Considering take-or-pay contracts, the government paid US$168 million in outstanding take-or-pay obligations to the Sankofa project contractors in 2019, the IMF noted. With take-or-pay contracts, the government will still need to pay for gas supplies that it cannot sell. Thus, new arrears of US$170 million have accumulated, and in April 2021 the contractors drew on a letter of credit for a second time, the IMF stated.
The IMF further indicated that the government’s cancellation of the Takoradi LNG contract is a positive step. However, it could create new fiscal liabilities, as settlement with the contractor is still pending.
Tema LNG facility and Excess Supply of Gas
Prior to this development, the Tema and Takoradi LNG contracts combined, were expected to add an annual US$822 million and US$523 million respectively to the gas supply. Precisely, this would have meant that by 2023, GNPC’s revenue losses will accumulate to US$4.5 billion.
Furthermore, the IMF opined that the new Tema LNG project, which was set to start production in June 2021, “will increase gas oversupply and cost US$200-300 million per year under a 17-year take or pay agreement.”
“New infrastructure will be needed to find buyers for the excess gas, either in-country or regionally.”
IMF Article IV Consultation
According to sources contacted by S&P Global Platts, a newly created Netherlands-based infrastructure development company, Ecow-Gas is serving as an affiliate of the Tema LNG Terminal Company (TLTC) that owns the yet-to-be commissioned LNG import facility in Ghana.
Meanwhile, some experts are of the view that linking the start of the Tema LNG terminal to a long term plan will indicate how the issue of excess supply of gas can be solved. Also, some CSOs have demonstrated similar misgivings, pointing out that there may be less demand for the gas.
However, with Ecow-Gas planning to set up LNG storage and transfer facilities across West Africa, S&P Global Platts noted that this may be an opportunity for Ghana to supply LNG to peers in the West Africa region.
S&P Global Platts reported that upon completion, the Tema LNG terminal is expected to create a Liquefied Natural Gas hub with a storage capacity in excess of 180,000 cubic metres to serve the West African market.
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