Author : Monica Skaten
Affiliated organisation : The Oxford Institute for Energy Studies
Type of publication : Report
Date of publication : April 2018
The history of Ghanaian petroleum activity can be traced back to the turn of the 20th century. The Tano and Keta Basins had small-scale production in the early 1900s, and the Saltpond field has been operating since the 1970s. However, it was the discovery of the offshore Jubilee field in 2007, with an estimated 700 million barrels of oil (MMbo) and 800 billion cubic feet (Bcf) of gas that put Ghana on the map as a commercial oil and gas producer. Since the Jubilee field reached first oil in 2010, two new projects have been developed in Ghana’s offshore waters.
Ghana has experienced external and domestic macroeconomic shocks since 2012, which led to a decline in economic growth from an average of 10–15 per cent in 2011–2012 to below 5 per cent in 2014 and 2015. The unreliable and low volume of gas imported through the West African Gas Pipeline has forced the country to import oil to generate electricity. The dramatically increased fuel bill and electricity shortages have had a substantial negative impact on the economy.
The development of the petroleum industry has been key to reviving growth in Ghana’s economy, with the trading of crude oil to gain much-needed foreign exchange and development of the domestic gas industry to help resolve Ghana’s electricity shortage.
Steady Growth in Ghana’s Petroleum Industry
Lower international oil prices in recent years have caused slowdowns in petroleum industries across the globe. Ghana, however, has not faced a strong downturn. Two new oil and gas projects have come onstream since production started at the Jubilee field in 2010, with current production levels at 126 000 bopd (Jubilee field 31 000 bopd, TEN fields 50 000 bopd, and Sankofa field 45 000 bopd).
Technical challenges in the Jubilee field resulted in a lower average for 2017 (production peaked at 115 000 bopd in 2013), severely impacting Ghana’s overall production level. Now that there has been a favourable result for Ghana in a maritime border dispute with Côte d’Ivoire, the TEN fields are expected to produce around 80 000 bopd, and there are positive prospects for further development in the Tano blocks, where discoveries have already been made. Ghana’s third offshore oil and gas project, the Sankofa field, contributes to the steady growth of the industry, increasing oil production and substantially contributing to growth in the domestic gas industry.
Continued Growth in the Offshore Industry
While the Jubilee field is Ghana’s first and so far largest project, several new projects have increased Ghana’s production capacity. The TEN fields are located 20 km west of the Jubilee field. The TEN fields became Ghana’s second major offshore oil and gas production project with first oil in August 2016. The reservoir was discovered in March 2009 with the successful drilling of the Twenneboa-1 well in the Tano licence area. The TEN fields have an estimated 240 MMbo and 396 Bcf of gas, and averaged production of 56 000 bopd in 2017.
Growth in the Downstream Industry
The downstream industry has had a handful of participants, including state-owned companies and international oil companies, since Ghana’s independence in 1957. In the 2000s, the sector saw a withdrawal of major oil companies (excluding Total) and an expansion of Ghanaian and African companies. In 2005, the government embarked on a deregulation reform, which made it easier for private companies to participate in import, distribution, and marketing of petroleum products. Ghana’s downstream industry transformed in the span of a decade to include a plethora of private companies. In 2014, there were 132 oil-marketing companies and 29 import companies.
The development of the petroleum industry has been key to reviving growth in Ghana’s economy, with the trading of crude oil to gain much-needed foreign exchange and development of the domestic gas industry to help resolve Ghana’s electricity shortage
The reform was initiated in 2005, but the substantial growth in Ghana’s downstream sector was largely driven by the discovery of oil and gas. The National Petroleum Authority was established to regulate and oversee the liberalization of the industry. The government of Ghana launched a credit scheme to boost the sale of petroleum products and offered favourable terms to encourage import companies and transportation ventures. The reform led to the erection of many new service stations across the country and formalized much of the downstream market. It did not, however, succeed in phasing out petroleum product subsidies as was planned but, unsurprisingly, proved politically challenging.
According to the 1992 Constitution, all petroleum resources are vested in the president of Ghana. Chiefs, families, and individuals retain some surface and subsurface rights that can entitle them to compensation for their land. But the minerals are vested in the president, and parliament has to ratify all petroleum agreements. The three successful and timely offshore projects developed in Ghana’s upstream industry are testaments to Ghana’s eagerness and competence in developing hydrocarbon resources in cooperation with international oil companies.
Since production started in the Jubilee field, the regulatory framework for the upstream industry has received an overhaul. The new regulatory framework has clarified the roles of institutions in the sector and made significant advancements towards transparency. One of the new laws, the Petroleum Commission Act of 2011, established the Petroleum Commission as the regulator of all upstream petroleum activities. There have been reports, however, that the Petroleum Commission lacks autonomy and is bypassed by the Ministry of Energy in decision-making, particularly when new petroleum agreements are signed.
Another of the new laws, the Petroleum Exploration and Production Act of 2016, is a considerable effort towards transparency in the industry and established Ghana’s Hybrid Petroleum Agreements. The Act stipulates an open and competitive tender process for acquisition of petroleum licences. However, the Minister of Energy has the right to circumvent the bidding process and enter direct negotiations. The Hybrid Petroleum Agreements offer a great deal of flexibility in blending of licencing procedures, royalty payments, and product sharing. As such, they form a tax- and royalty-based system with minority state participation (the state is represented by GNPC, which holds a 10–15% share). To date, all petroleum agreements in Ghana have been granted through direct negotiation.
Political Intervention: Kosmos Energy in Troubled Waters
Since the discovery of the Jubilee field in 2007, Kosmos Energy has had an uneasy experience in Ghana’s new petroleum industry. The change in government from the NPP to NDC in 2008 led to corruption investigations into Kosmos’s entry to Ghana through its relationship with the EO Group, a Ghanaian petroleum company. Both the Ghanaian government and the US Department of Justice were involved in the criminal investigations.
Political intervention was to be expected in Ghana with a change of government. However, international continuance gave the investigations further momentum. In October 2009, Anadarko filed a complaint about Kosmos’s compliance under the Foreign Corrupt Practices Act at the US Department of Justice for possible violations in connection with securing licensing, exploration, and production agreements. Anadarko had been working with Kosmos since the start of developing the Jubilee field.
Maritime Border Dispute: Ghana versus Côte d’Ivoire
The maritime border dispute between Ghana and Côte d’Ivoire resulted from a long-term disagreement regarding the direction of the azimuth line dividing the two countries’ territorial waters, exclusive economic zones, and portions of the continental shelf. The TEN fields, developed by Tullow Oil Ghana, are located in Ghana’s Western Basin on the border with Côte d’Ivoire an area that Côte d’Ivoire in September 2011 claimed as part of its exclusive economic zone.
After a series of bilateral negotiations that did not yield meaningful results, Ghana turned to the International Tribunal of the Law of the Sea (ITLOS) in November 2014. The Ghanaian government asked the tribunal to determine the precise geographical coordinates of the maritime boundary between the two countries.The Ghanaian government argued that there had always been a tacit agreement regarding the location and direction of the maritime boundary. As such, Ghana wanted ITLOS to affirm the customary equidistance boundary as the two countries’ maritime border. Ghana presented the records of oil concessions, seismic surveys, and exploration and drilling activities from both Ghana and Côte d’Ivoire to demonstrate the use of the boundary for approximately 50 years.
Côte d’Ivoire maintained that the maritime boundary between the two countries was still to be delimited, as there had been no formal or tacit agreement on it. Côte d’Ivoire argued that there had only been four drilling operations in the disputed area, to which Côte d’Ivoire had made clear objections. The maps provided by Ghana were discounted by Côte d’Ivoire as not authoritative. They pointed out that international courts and tribunals have been reluctant to treat oil practice as proof of the existence of a maritime boundary. Côte d’Ivoire further pointed out that Petroci was a commercial entity and was not mandated to establish maritime boundaries on behalf of the state. Côte d’Ivoire asked ITLOS to declare that the activities carried out by Ghana had violated Côte d’Ivoire sovereign rights over its continental shelf and to facilitate compensation payments for the damages resulting from that violation.
The Act stipulates an open and competitive tender process for acquisition of petroleum licences
The tribunal made an interim ruling in April 2015 that Tullow and Ghana could continue to develop the TEN fields, under the condition that no new wells would be drilled in the disputed area. In its final judgment on 23 September 2017, the tribunal rejected Ghana’s claim that there had been a tacit agreement between the two countries that constituted the delimitation of the maritime border. It ruled, however, that the single maritime border between the two countries started at the landmark BP 55+.
The Politics of the Voltaian Basin
The search for hydrocarbons in the Voltaian Basin has to be examined in Ghana’s larger political context. Of course, both political parties would benefit from discoveries in the basin and the resulting income. For the NPP, spearheading oil and gas production in the Voltaian Basin will add to the party’s reputation for and legacy of developing oil and gas resources in the country. However, exploration in the basin will be capital intensive, and the majority of GNPC’s capital is currently tied up in oil and gas projects in the Western Basin. The latest chief executive officer of GNPC, Kofi Sarpong, has already indicated that the corporation lacks funds to pursue Akufo-Addo’s election promise.
The government’s development agenda for communities within the Voltaian Basin plays on popular regional development politics. While some regions in Ghana remain party strongholds, ‘swing regions’ have become more and more common in national elections. The Voltaian Basin covers four of Ghana’s administrative regions and a large portion of the voting population. At an election rally in the Volta Region in 2016, then candidate (now President) Akufo-Addo promised the NPP would develop the Voltaian Basin for oil and gas production and provide economic development and jobs, similarly to what had been done in the Western Region.
Ghana has a long history of resettling communities to make way for natural resource exploitation projects. The Volta River Project included the building of the hydroelectric dam at Akosombo, which required the resettlement of 78,000 people in the early 1960s. More recently, resettlement of communities to clear land for gold and bauxite mining has led to loss of agricultural land and agitation among affected communities. While resettlement in Ghana has come through policy, and communities have been offered a range of compensation including land, there is a general dissatisfaction with the process.
This can be turned into political leverage during national elections, and presents a threat to the companies involved. In addition to generating Ghana’s hydropower, the Volta Lake and connecting rivers have major economic importance for the communities surrounding them. The inland water system hosts a large portion of Ghana’s fish resources, including most large-scale commercial fish farms. Tilapia, an important part of traditional Ghanaian cuisine, is the predominant fish species in the lake. Inland trading centres can be found around the Volta Lake, and they rely on the water for fishing as well as transport to urban markets in southern Ghana. The lake is used for transportation of people and livestock as well as commodities such as cement and petroleum products.
Ghana’s petroleum industry has seen steady growth despite declining international oil prices in recent years. Having joined the league of oil- and gas-producing nations with the discovery of the Jubilee field in 2007, today Ghana can boast of three offshore oil and gas projects in the Western Basin, providing an output of 126 000 bopd. Moreover, the Sankofa field is projected to contribute significantly to domestic gas production. Increased gas production will aid the electricity sector and have wider positive effects in the economy. The new industry has attracted a range of international companies and fuelled a new domestic industry that is becoming crucial for the country’s economic growth. As border-dispute-related issues in the Tano Basin are resolved and technical challenges in the Jubilee field will be resolved with time, the production level is expected to grow further even without additional projects coming onstream.
With no major civil conflict in the country since independence and three peaceful turnovers of power since the inception of the Fourth Republic in 1992, the country is renowned for the stability of both its democracy and its business environment in an African context. With the usual caveats about political predictions, the current NPP government could be in power for two terms. This would provide stability for international and Ghanaian petroleum companies and could lead to further expansion of the industry, perhaps even the development of onshore oil and gas production in the Voltaian Basin. However, polarization between the two main political parties will likely continue to impact institutional stability and limit the long-term potential for state-owned enterprises in the petroleum industry.
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