The Africa Centre for Energy Policy (ACEP), has warned that the current trend of limited activities in the upstream oil and gas sector, including the non-development of new oil fields, has the tendency of derailing government’s upstream ambitions.
The country is at the crossroads in its upstream oil and gas business; either to increase the oil and gas sector’s contribution to the country’s development mix or to continue down the path of limited benefits from its upstream activities.
Highlighting the current state of the sector and the need for drastic measures to avert the looming challenges, the energy think-tank noted that, “the government must immediately conclude the negotiations on the 2018 Bid and Licencing Round, where Eni and First E&P emerged as successful bidders”.
The most likely scenario, should this current trend persist is the fact that, “the delays in negotiations will undermine the trust and robustness of the bid process,” which situation has implications for future bid processes namely, the competitive bidding process, rather than the new proposal to award blocks through direct negotiation.
The energy think-tank further suggested that the government must insist on compliance with the minimum work obligations of upstream companies who have been assigned blocks. Quite regrettably, the lack of enforcement encourages speculation by inefficient companies whose principal desire is to hold on to the blocks, ACEP noted.
There is also the unfortunate perception that, “…things do not get done in Ghana…” This, the think-tank noted is a worrying trend and that, “government must act swiftly to diffuse the perception by engaging stakeholders and learning from other competitive regimes”.
Underperformance of Upstream Oil Sector
Ghana’s upstream sector has underperformed relative to expectations in the past years. Since the last oil field, Sankofa Gye Nyame (SGN), was added in 2017, no additional field development has been added to increase production or at least stabilise the existing production. Likewise, crude oil production has declined year-on-year after a peak in 2019.
“Consequently, there has been a dwindling contribution of the oil sector to GDP growth (-6% in 2020 and a projected -16% in 2021). These events have significant implications on the government’s balance of payment and attendant negative impacts on the domestic currency. These implications should send signals for clearer and transparent rules of engagement to promote the growth of the oil sector.”
ACEP
Regrettably, three potential projects could have been pursued more aggressively through enforcement, planning, and strategic engagements with industry players to increase oil production. The projects are Aker Energy’s Deep Water Tano Cape Three Points (DWT/CTP) block, Eni’s Cape Three Points (CTP) Block 4 and Springfield’s Afina discoveries.
Beyond the three potentials, activities in the upstream sector have been slow. Many of the existing block holders have been inactive. ACEP noted that it has periodically highlighted the lack of capacity of most companies to deliver on their obligations, which by law should attract sanctions. However, these companies continue to hold on to the blocks without delivering on the terms of the Petroleum Agreements.
ACEP noted that the regrettable challenge identified by capable upstream companies is that “…in Ghana things don’t get done…” The situation that keeps playing out is the inactivity in terms of development in the sector. In 2018, Ghana went through its first competitive licencing round. By September 2019, two companies emerged as winners of two oil blocks.
Nonetheless, the final negotiations have entered their third year because the government is negotiating for terms that were not part of the bid conditions. Surprisingly, the Minister of Energy recently announced that Ghana will give all available blocks on direct negotiation.
The Minister’s posture ignores the fact that competitive bidding is not the problem for the inactivity in Ghana, but politics and lack of enforcement of transparency measures passed into law, ACEP said. In the current context of the upstream sector, the investing companies feel frustrated while the inactive companies remain patronised.
ACEP indicated that the government needs to note that reserve addition is critical for the sustainability of every aspiration tied to the oil and gas sector. There can be no local content if fields are not being developed. Again, the sector’s contribution to GDP cannot improve if there are no additional developments in the upstream sector.
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