The government could benefit from a windfall in oil revenues again in the coming year, as some analysts forecast oil prices rising beyond US$80, resulting from crude shortfalls and the signs of rapid underinvestment likely to hit the oil market in the coming year.
While market sentiments about oil prices are divergent as uncertainties heighten, the expectation that a slightest shock in oil supply could be a boon for oil prices appears reasonably copious.
In the short term, however, analysts indicate the impact of the omicron spread could dampen oil prices. Philip Streible, veteran industry analyst with Blue Line Futures, US-based Commodities trading and research firm, said oil prices are at risk of hitting US$60 in the near term due to Omicron-related demand slow down. But that will likely prove to be a buying opportunity in front of a “long-term” rally in 2022.
“We are going to see the demand picture continue to pick up… Hopefully we can get this pandemic behind us.
“We don’t expect OPEC to take any kind of reaction by picking up their supply picture. So we expect any kind of small supply shock would send prices higher. We are expecting US$85 to US$90 [a barrel] of oil next year.”
Philip Streible, Industry Analyst, Blue Line Futures
Upside Risks to Oil Prices in 2022
With this view, rising oil prices would present an extension in this year’s windfall gains, repeating in the coming year. This means expected revenues from government’s oil exports and tax returns from oil companies would climb higher for 2022.
Damien Courvalin, Goldman Sachs’s head of energy research is cited to have predicted a rise in oil prices at US$85 per barrel for 2022, with an upside risk that could see prices go $5 to $10 higher, even suggesting that a US$100 price rally for oil is still possible.
He highlighted two paths could lead to that: the first has to do with cost increases as Oil Companies ramp up production. “There’s inflation everywhere else in the economy (US), and eventually there’s inflation in oil services.”
The second possibility is hinged on a scenario where the supply of oil can’t meet demand as global economies reopen from the pandemic, according to CNBC.
For the government, this provides tailwinds to revenue accumulation, as it would aid inching closer to revenue target for the year, set at GHS100.5 billion, while offsetting the underperformance of other government tax handles.
This year, crude prices soared to record levels, reaching three-year highs (US$85 per barrel) compared to the previous year, owing to skyrocketing demand levels which outstripped supply as economic activities continued on a rebound.
However, elevated fears about the impact of the Omicron variant on oil prices appeared overblown, and crude prices gradually picked up, selling around US$79 per barrel currently.
In its 2022 budget statement, the government forecasted benchmark crude oil price, of US$61.23 per barrel, up from the US$54.75 per barrel for 2021, representing an 11.8 per cent increase in prices.
With this price forecast, petroleum receipts are projected to reach US$1.006 billion in 2022. Similarly, the government projected further rise in revenue of US$1,033.2 million in 2023, US$1,060.7 million in 2024, and US$1,017.2 million in 2025.
Ghana’s Crude Oil Output Remain Low for 2022
However, crude oil output continues to remain subdued. The 2022 Benchmark crude oil output was forecasted to reach 59.51 million barrels, equivalent to a daily average of 163,044 barrels of crude oil per day (b/d), albeit lower than the 2021 Benchmark crude oil output, set at 65.86 million barrels, equivalent to a daily average of 177,700 b/d.
A lower crude output would unfortunately drag the expectedly huge returns the government could make in the scenario of high oil prices, as evinced by some analysts.
Albert Longdon-Nyewan, head of production at the Ghana National Petroleum Corp. is cited to have said the impact of the COVID-19 pandemic on oil production will continue into 2022. This, the government highlighted as reason for the decline in crude output for the first 9 months of 2021.
It is not surprising, therefore, as the country’s crude exports for January 2022 are scheduled to remain unchanged from that of December 2021 at 153,000 b/d.
Besides, the development of the offshore Pecan field by Aker Energy which is expected to add 110,000 b/d to total crude output will not be ready in the short-term, as the government indicated in the 2022 budget that the earliest date would be in 2024.
“First oil from the Pecan field is expected in 2024, with a ramp-up of production occurring the following year in 2025.”
2022 Budget
Earlier this year, the Parliament of Ghana granted approval for the national oil company GNPC to acquire 37 per cent stake in the Deepwater Tano Cape Three Points (DWTCTP) block, operated by Aker Energy.
According to the CEO of GNPC, Dr Kofi Sarpong, in an interview, this asset purchase could help speed up the development of the field, without which Aker Energy is likely to move slowly as the ongoing energy transition threatens investments in oil.
According to the International Energy Agency (IEA), global crude oil supply could increase by as much as 6.4 million barrels per day in 2022, up from a rise of 1.5 million barrels per day in 2021.
Meanwhile, global oil demand could rise by 3.3 million barrels per day in 2022, in comparison with 5.4 million barrels per day of growth in 2021.
Also, global crude consumption is expected to rise to 99.53 million barrels per day (bpd), up from 96.2 million bpd this year, only slightly below 2019’s daily consumption of 99.55 million barrels. However, these expectations depend on having the new Omicron variant of Covid-19 quickly under control, IEA said.
Given the above, a contraction in oil supply is not far from expected. This is because currently, numerous OPEC nations have already been struggling to add to output as demand for oil continue to pace up, including other factors such as the growing disinvestment in fossil fuels.
Indeed, the government stands the chance of making another windfall this coming year. Hopefully, to realize huge returns, the government should be able to gradually put measures in place to address the lower crude output from the country’s oil fields.
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