|For the first time in 20 years, oil producing giant, Venezuela is increasing fuel prices. The country is currently in deep economic crisis as a result of low oil prices and is considering devaluing its currency. The fuel price increment announced in a televised address will save the oil rich country $800m a year.
The World’s largest oil exporter, Saudi Arabia ran a record deficit of over 90 billion dollars in 2015. US-based Moody’s ratings agency over the weekend downgraded Saudi Arabia’s credit profile. It lowered the Kingdom’s long-term foreign-currency bond and deposit ceilings to A1 from Aa3. Moody says the drop in oil prices from mid-2014 peak has affected the Kingdom and its government finances. The impact is so great that, media giants like Bloomberg and the Guardian are projecting another five percent drop in GDP in 2016 after a whopping 13.3 percent fall in 2015.
Bahrain’s rating was also reduced to BA2 from BA1 and Oman was downgraded to BAA1 from A3, while the outlook for crude exporters including Abu Dhabi, Qatar and Kuwait were negative.
The impact on Africa’s biggest oil producer Nigeria, which is also the 13th largest exporter is worse. Last week, government removed subsidies shooting fuel prices by 66percent. One-fifth of its oil production has been cut while labour unions are threatening to paralyze Nigeria with strike amidst intense power crisis.
The decline in the price of crude oil badly hit Angola. The national currency kwanza nearly crashed and imports have drastically reduced. Food is scarce and more expensive. Supermarkets have to ration it. The drop in the price of crude oil to its lowest level in more than a decade has not only pushed Angola’s currency to record lows, it has plunged the economy of Africa’s second largest crude producer into a crisis. Angola is going through a very serious economic crisis as it’s heavily reliant on oil. Revenues have fallen by more than half.
Are these signs of the times? Unlike the two historical oil shocks, when OPEC (1973) and Iran (1979) apparently deliberately turned off the spigots which led to cataclysmic dislocations in the economies of the world, there is a current global trend of oil shocks caused by downward spiraling oil prices. Speaking on the issue of oil shocks, Collin Campbell, whose career spanned Texaco, Amoco, BP, Finna once warned that we face “a major historical discontinuity, by which I mean civilization itself is under threat.”
These are very alarming trend and especially for expectant Ghanaians who have concerns or questions about specific measures to cushion Ghana’s emerging oil economy.
Researching the trends of the global oil shocks and their impact on Ghana, The Republic Newspaper spoke to the Minister of Petroleum, Kofi Buah, to understand policies the Government is putting in place to cushion Ghanaians from the global oils shocks. As a country, we have been experiences this in the 1970s and the 1980s when the soaring oil prices, rising turmoil in the Middle East, falling production at the some of the biggest oil fields, the growth of resource nationalism among other producer nations from Russia to Latin America and its rippling effect on utility bills hitting our Ghanaian door steps with an increasing heavy thud.
Even though there are reports of the estimated oil reserves at the Jubilee Field jumping up to over one billion barrels, there have been drastic declines in oil revenue receipts. Ghana earned 2.9 billion dollars from oil revenues between January and September in 2014. During the same period in 2015, proceeds were almost halved to 1.5 billion dollars. This has had serious implications for the government’s ability to deliver on its economic targets.
The public obviously is biting the bullet like nationals of other countries. Unlike the past, majority seem to have accepted the reality and have kept their fingers crossed for good news.
This has been influenced in part by a smart decision to deregulate the downstream petroleum sector. Mr Emmanuel Armah Kofi- Buah, the Minister of Petroleum said Government’s decision to deregulate the petroleum sector was to allow petroleum importers and marketers to reduce their price as well as pull in more private players into the sector. “Government’s decision to deregulate the petroleum sector has compelled oil importers and dealers to fix their own prices at cheaper rates as buyers buy from importers, whose prices are cheaper compared to others”, he said. Competition among the BDCs and OMCs has led to reduction in margins and therefore lower prices for final consumers of petroleum products. Some vehicle owners and commercial drivers now shop around to buy from OMCs with the lowest prices. “The final consumer is obviously the winner of the deregulation of petroleum prices,” he added.
Analysts project a positive trend towards the close of 2016. Major exporters are reviewing their policies to ensure adequate savings to cushion future happenings, an issue Ghana cannot afford to miss now.
Until the oil find, Ghana’s largely depended on Cocoa, Gold and other mineral deposits as well as timber.
Propaganda after the confirmation of oil reserves in commercial quantities in 2007 has undoubtedly triggered high public expectation. But until 2010, Ghana had virtually no laws or regulations to protect its interests at the Jubilee Field.
Major issues that influenced discussions when the NDC assumed office in 2009 were local content, transparency in revenue management, investments and diversification to prevent the ‘Dutch Disease’ as well as environmental and safety concerns.
The Petroleum Revenue Management Act has since been passed. This law among other things recommends the lodging of proceeds into the Heritage Fund (which is established for the future generation) within 30days. Other payments are subsequently paid into the Petroleum Holding Account, the budget, emergencies among others recommended under the Act.
For transparency, the Public Interest Accountability Committee, (PIAC) has also been established and the Committee made up of ordinary people and experts including Chiefs, journalists, civil society groups who freely scrutinize every drop of oil and gas produced and sold. This is historic as far as oil production in Africa is concerned and good for Ghana’s fight against corruption.
The Petroleum Commission, an independent regulator has also been established with a mandate among other things police all activities from licensing, exploration, production and related operations. The Commission since its establishment has saved the state over $600m through due diligence.
These bold decisions were taken after expert advice and lessons from major oil producing countries some of which experienced the Dutch disease.
For example, proceeds lodged in the account for emergencies can today be used to fund projects which hitherto couldn’t have been financed as a result of the sharp decline in prices.
Another vision which is so far paying well is how to build strong local content and to ensure Ghanaians eventually take over the entire industry. The Minister for Petroleum, Emmanuel Armah Kofi Buah, policy Think Tank, ACEP and other experts have commended government for the bold decision.
Under the LI all expatriates working in the sector have permits from the Petroleum Commission. Of the 400 registered companies, over 300 are locally owned. Out of about $4billion contracts awarded within the last three years, about one billion went to Ghanaian industries.
Of about 7,000 people employed in the industry, 5,000 are Ghanaians. Foreign Companies are now in competition. For example the Chief Executives of COSMOS, Tullow Oil are Ghanaians and many other management staff are locals. Good news for the nation’s future in the oil industry. In short, Ghanaians are doing well in the industry.
Besides, government is investing in infrastructure at the Kwame Nkrumah University of Science and technology and other Polytechnics. It has so far spent over two million dollars in the establishment of modern laboratories for Petroleum engineering.
The new Petroleum Exploration and Production bill is expected to enhance or replace PNDC Law 84. The bill has received cabinet approval and is currently before Parliament. This new law allows for competitive tendering and enhances transparency.
Unlike other mineral resources, government under the leadership of President John Mahama has a blue print to exploit its ‘Black Gold’. Ghana is not flaring but monetizing the gas. The successful completion of the Ghana Gas Project at Atuabo is one of the success stories compared to Nigeria, Angola and other countries.
Ghana Gas is saving hundreds of millions of import bills on light crude oil which would have otherwise been spent for power production by the Thermal plants. The one billion dollar project is a major contributory factor to the end of the power crisis which bedeviled the nation for years, crippled businesses and the economy. During the commissioning phase of the gas project from November, 2014, Ghana Gas supplied 4,435.34 MT and 14,640.25 MT (Metric Tons) of Condensates and Liquefied Petroleum Gas (LPG) respectively to its customers and 5, 039, 700. 32MMBTU (Million British Thermal Units). Ghana Gas started commercial operations on 1st April, 2015 and by December 2015, the gas plant had supplied to the Ghanaian market 17, 060.6 MT of Condensates, 14640.25 MT of Liquefied Petroleum Gas (LPG) and 5, 039,700.32 MMBTU. The Minister of Petroleum described Ghana Gas as a game changer because:
“The sale of Lean Gas to VRA has created a cost saving of about USD 500 million, which could have been used to purchase crude oil for power generation,.” He said. “The production of LPG and Condensate at Atuabo Gas Processing Plant for the local market has also brought foreign exchange savings to the Ghanaian economy. Ghana Gas supplies 40% of the national demand of LPG. This has reduced importation and demand for foreign exchange,” he added.
The unreliable supplies through the West Africa Gas Pipeline in which Government of Ghana expended over $400m is no more news. The vision of the NDC government has paid off.
There are additional prospects for gas from the Greater Jubilee, TEN and ENI projects which will bring more gas on. It will increase gas production from 120 million standard cubic feet per day to about 335.
The Offshore Cape Three Points, OCTP project, the first on the continent is equally critical because of the additional volumes expected. Under the 7 billion dollar ENI deal supported by the World Bank, all the 180mscf of gas to be available (enough to produce 1,000 megawatts of electricity) will be sold to Ghana.
What is critical about this project is about the decision to review the contract with VITOL signed by the Kufuor administration. The renegotiated agreement improved the fiscal terms. The country’s stake then was less than nine (9) percent but that has been moved to 15 percent, a gain of almost 600million dollars for the state.
Petroleum Minister, Emmanuel Armah Kofi Buah speaking about the future of the power industry said, “the huge investment in the oil and gas sector sets the pace for accelerated development especially as confidence in the economy continues to grow. Ghana will soon boast of cheap source of fuel to power numerous thermal plants under construction. And with reliable source of electricity, you can imagine the openings ahead for strategic industries”
“We have spent two years of sleepless nights to bring Ghana this far” The Aboso Glass Factory, the Bonsa Tyre Factory folded up because of power problems. Bringing back VALCO in the near future alone when we provide it with a dedicated source of power can create over 10,000 direct and indirect jobs” he added.
Ghana has entered the Gas Era and the prospects are bright. Part two of this report looks at the way forward for the power sector and industrial revolution in Ghana.
The efforts of the government to deal with the oils shocks have attracted the attention of Trinidad and Tobago, an oil and gas exporting country. Its Prime Minister, Christopher Keith Rowley in a visit to Ghana, promised to share with the Government of Ghana his countries expertise, experiences and capacity in the oil and gas sector as well as seeking areas of investments in gas infrastructure, pipeline construction, refineries and aluminum smelting.