Ghana’s Liquefied Natural Gas (LNG) is expected to increase to 1.2bcm this year, as Ghana’s LNG terminal reaches its final construction phases, Fitch Solutions predicts.
The terminal’s floating regasification unit arrived in Ghana in early January 2021, marking one of the final steps in the project’s construction. The operator of the terminal, Tema LNG Terminal, expects that the facility will be online by the end of Q1 2021, having been delayed in Q1 2020 due to Covid-19.
According to Fitch Solutions, the new start-up date for the operation of the terminal comes earlier than had been predicted. However, due to bureaucratic, financial, and operational hurdles the running of the facility may delay, given Ghana’s previous history of undermined LNG projects.
Moreover, the facility is significant for both Ghana and SSA, as it will mark the region’s first offshore LNG import terminal.
Essentially, the project began construction in 2018 and has experienced numerous delays since. Once in operation, Tema LNG Terminal will operate the USD350mn project for 12 years, after which the terminal operatorship will be transferred to the Ghana National Petroleum Corporation (GNPC) and the Ghana Ports and Harbours Authority (GPHA).
The new terminal has the capacity to import around 2.0mtpa of LNG. In May 2018, GNPC signed a cooperation agreement with Russia’s Rosneft to supply 1.7mtpa of LNG over 12 years. However, company partners have stated that Royal Dutch Shell will now supply LNG to the facility, which indicates Shell has likely replaced Rosneft as the supplier.
Bright Outlook for LNG
Based on Fitch solution’s forecasts, the imported LNG will improve the security of Ghana’s natural gas and predominantly serve the power sector. Ghana’s gas composition is forecasted to increase by 15.0% in 2021, to 4.53bcm as the country begins to recover from the Covid-19 pandemic and the flagship gas-fired Bridge power plant comes online.
The Organization’s country risk team is optimistic about Ghana’s growth prospects and expects real GDP to grow by 4.8% in 2021. Accordingly, recovering industrial and manufacturing activity will support the growing demand for gas in the near term.
Also, based on long-term forecasts, Fitch Solution suggests that demand will be driven by the power sector. The 424MW Bridge gas power plant is expected to be fully online in 2021, thus increasing demand for LNG and complementing the start-up of the Tema LNG terminal.
The Power team of the Organization forecasts Ghana’s gas-fired power generation to increase by 9.5% between 2021 and 2030, to 8.07TWh – representing 40.8% of total electricity generation.
The Tema LNG facility provides an advantage for more gas-fired power projects coming online over the long term, which would consequently boost the country’s gas consumption further. However, given the historic risks of gas shortfalls in Ghana due to unreliable pipeline supplies from Nigeria, many of Ghana’s power plants are designed to also operate on LPG and oil.
Furthermore, a downside risk to the flexibility in power generation of these projects is that the potential long-term availability of a cheaper alternative feedstock could, in turn, dampen demand for natural gas.
This notwithstanding, Ghana is one of the few SSA countries that is able to capitalize on these market conditions and subsequently increase their LNG demand over our forecast period. Although, declining gas prices due to current international supply, has created a buyer’s market for LNG over the short-to-medium term.
A significant constraint to LNG infrastructure is the huge capital requirements needed for their construction. Consequently, expanded investment in LNG infrastructure across SSA seems unlikely in the near-term given the weakened macroeconomic environment many countries find themselves in due to the Covid-19 pandemic. As a result, currently only Ghana and Côte d’Ivoire are set to become key LNG importers in the region based on this forecast period.