The downward revision of crude oil production volumes indicate an ‘ailing’ upstream petroleum sector. This trajectory does not augur well for the country, considering the belated oil-induced development which was touted years ago.
In the mid-year budget review, Ghana’s annual crude production capacity was projected to see a further decline from 59.5 million barrels (163,044 barrels of crude oil per day)) to 58.0 million barrels.
This is despite the fact that there is an upward adjustment of the benchmark crude oil price from US$61.2 per barrel to US$94.8/bbl. Over the past months, favorable oil prices have provided tailwinds to oil revenues accumulated over the course of the year.
Recent Bank of Ghana (BoG) data shows that the country’s oil take in upstream petroleum activities accumulated $731,944,828.87 in corporate taxes, surface rentals and oil liftings in the first half of the year.
A breakdown of the data shows that as at close of the second quarter, Ghana accumulated $186.3 million in corporate taxes from Tullow ($72.4 million), Kosmos ($109.5 million) and Petro SA ($4.5 million).
While the accumulated revenue for end-June 2022 exceeds half of the projected amount for end-year 2022 (US$1,006.1 billion), this is only temporary and as volatile as the oil market is, a de-escalation of the Russia-Ukraine war in the short-to-medium term may collapse oil prices and have a strong negative effect on oil market, dwindling oil revenues.
Since the onslaught of the Covid-19 pandemic, the sector has faced several challenges. Oil producing companies declared an adverse impact of the Covid-19 pandemic on operations, thus slowing down production.
Since 2019, forecasts from research institutions such as Fitch Solutions have been on the upside. However, these forecasts are pivoted on a number of expected developments in the sector including the anticipated development of the 110,000 barrels per day (b/d) in the Pecan field.
According to the 2022 oil and gas sector outlook, Fitch Solutions said this “holds the key to the country’s oil future- which is expected to start up in 2025, though risks to this timeline lie to the downside”.
Sanctions on Russia affect Development Plans of Lukoil-Aker Pecan Field
The Africa Center for Energy Policy (ACEP), in its report on the ‘State of the Extractive Sector of Ghana’ said:
“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.”
ACEP report
While these issues have been ongoing, the Russia-Ukraine war coupled with the call for energy transition have compounded the situation. The Russia-Ukraine war and the associated sanctions on Russia’s oil and gas firm (Lukoil), which is a partner to Aker Energy in developing the DWT/CTP field in Ghana has once again stalled after previous schedules were unmet.
Due to these current circumstances, Aker Energy is reported to have once again postponed submitting plans for the offshore Pecan field, citing the challenges faced among its partners of the Russian company Lukoil, whose founder is under Western sanctions.
In addition, the arduous protraction of the Eni-Springfield unitisation also sends negative signals that could rock the upstream sector really badly and affect the country’s oil development activities.
“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.”
ACEP
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