By: Gerelyn Terzo of Sharemoney
Ghana seeks to bolster its economy through oil and gas production — and it’s willing to saddle itself with debt to do so. The government of the West African nation has its sights set on acquiring USD 1.3 billion in hydrocarbon assets. To do so, Ghana’s Energy Minister Matthew Prempeh is seeking a green light to take on as much as USD 1.65 billion in debt, which would go toward acquiring the licenses to develop idle energy assets. Officials want to use the country’s oil and gas reserves as collateral to secure the funds and regain control of its energy fate.
Ghana suffered a blow in June, when oil major ExxonMobil decided to abandon its majority interest in the country’s major deepwater block located offshore, dubbed the Deepwater Tano Cape Three Points. The oil major, which had an 80% stake, possessed the rights to perform exploration and production on the site for the past three years but never dug a well.
Ghana National Petroleum Corporation still holds a 15% interest in the Three Points block, and Lukoil has a stake too. Nonetheless, ExxonMobil’s departure put the West African nation back on the hunt for a new site operator. Unfortunately, nobody else wants the assets: not China-based energy companies nor France’s Total nor any other industry player. As a result, Ghana is left to invest in its own energy resources to generate revenue from the discoveries.
Ghana’s position in Africa’s energy industry is dependent on its ability to harness the country’s hydrocarbons as an energy source, a task made more difficult by the global push toward low carbon alternatives. Ghana has seen its electricity production increase over the past decade, which has helped the economy. Nonetheless, electricity in the country is still considered undependable, which has been a hurdle for households and businesses alike.
Exploration and Production
Ghana uncovered oil and gas reserves 14 years ago. Now the country would like to gain access to a billion-plus in funds to perform exploration and production on reserves. GNPC Explorco, a unit of Ghana National Petroleum Corp, would work on the project. According to reports, the country is looking to acquire more than one-third of a position in Aker Energy’s Deep Water Tano/Cape Three Points (DWT/CTP) fields and close to three-quarters of AGM Petroleum Ghana’s South Deep Water Tano assets. Neither field is being developed yet. Aker and AGM are both Norwegian companies, and they operate the oil fields. They are both controlled by billionaire entrepreneur Kjell Inge Røkke.
Ghana officials are not worried about the stigma attached to hydrocarbon drilling in countries such as the United States. According to Bloomberg, Charles Adu Boahen, Minister of State at the Ministry of Finance, said plenty of countries outside of the West are keen to use fossil fuels to meet their electricity needs. As a result, they are willing to drill these fields.
According to Prempeh, Ghana’s fields have the potential to produce 200,000 barrels per day in less than half a decade. The energy minister has argued that without the support of the oil majors, Ghana’s options are limited. They were forced to choose between the lesser of two evils: leave the energy assets idle or develop these fields themselves (for a hefty price tag) and generate much-needed revenue and jobs.
Ghana’s government does not have total support. Critics argue that the government, out of desperation, is willing to overpay for the licenses to drill. That is because Røkke doled out a reported $100 million for its share in DWT/CTP a few short years ago.
Prior to the pandemic, Ghana’s economy was growing at a robust pace. The country’s economy expanded at a rate of 6.8% annually in the decade leading up to 2019. In 2020, Ghana’s economy expanded at 1.1%, thanks in large part to a strong Q1 2020 before the lockdowns took effect.
The energy industry, particularly the exploration and production of crude oil, contributes to an increasing portion of its economic growth. As a result, the strength of the oil price will influence the economic outlook for the near term.
The World Bank predicts that Ghana’s GDP will expand at an average rate of 2.2% between 2021 and 2023, based on a low oil price. If the oil price strengthens, however, Ghana’s GDP will grow at an average annual pace of 4.5%. Ghana will have to remain nimble and increase its dependence on other sectors of the economy, such as agriculture if the oil price remains suppressed.
Ghana doesn’t rely as heavily on oil revenues as some other countries in the region, such as Nigeria, and instead leans on mineral exports such as gold and commodities such as cocoa. Nonetheless, it could still benefit from a more diverse economy. According to OEC.world, Ghana’s top exports in 2019, which is the latest data available, were the following:
- Gold at 49.8%
- Crude Petroleum at 21.5%
- Cocoa beans at 7.39%
Most of Ghana’s exports go to Switzerland, India, China, the UAE, and South Africa.
Ghana, which is the second-largest economy in the Western African region, is also dealing with rising inflation. Consumer prices inched up 1.6% in June to an inflation rate of 9%, which was higher than economists predicted. If inflation doesn’t surpass a target of 10%, however, the country’s policymakers aren’t expected to make any sudden changes to monetary policy.
In order for Ghana’s energy resources to reach their potential, the government could also explore investing in oil and gas drilling technology that leaves less of a carbon footprint. This is one method that could potentially bolster foreign investment into the country, and it is something other African nations dependent on hydrocarbons might also consider.