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    Ghana

    The discovery of Jubilee off the coast of Ghana is a business opportunity with a cascade effect on the rest of the economy. Proven reserves in the deepwater oil field are around 800 million barrels, with an upside potential of 1.8 billion barrels. When the crude begins to flow in Q4 2010, the needs of the nascent energy sector will extend from supply vessels to pipelines, storage tanks, refineries, power stations, transmission grids, public utilities and hospitality services. Many of the projects will be financed by 26 domestic and foreign banks that are quickly adapting to the needs of the industry. The central bank has raised minimum capital requirements to bolster institutions against future risk. Meanwhile, the receipts from the oil windfall will pay for infrastructure upgrades in this country of 24 million people. Officials have announced a 90% target for local content across the industry by 2020. Since 1992, the government has changed hands three times by way of peaceful multiparty elections. Ghana is seen as a safe island in a region of turbulence. Now the country is being handed a new role as oil producer and is vowing to make the best out of its transparency credentials.

    A Platform to Higher Growth

     

    The oil discovery at Jubilee has changed the game for Ghana's 26 banks. With greater size and efficiency, regulators are making sure institutions are able to finance the coming energy boom.

    In Ghana, High Street has always been synonymous with finance. This is where the Bank of Ghana (central bank, BoG) first set up in 1957 after independence. The original building is only blocks away from the Gulf of Guinea where the Jubilee field was discovered in 2007. High Street was also the birthplace of Ghana Commercial Bank (GCB), the country's largest institution by assets.

    "With the Jubilee field, Ghana's future will change. We're going to enter a different category of economy. At this stage, I think it's an advantage for global financiers and developers in all kinds of activities, including real estate and environmental projects, to look at Ghana and seize the opportunity," says George Aboagye, CEO of the Ghana Investment Promotion Center (GIPC).

    The banking system faces the daunting challenge of financing an oil & gas industry far beyond its reach. Long-term credit is difficult to obtain, with yield curves typically extending to only 3 years. SMEs face tough lending conditions, in part due to poor risk management. Bank managers point to high inflation and institutional deficits. But with inflation moving into single digits, there is light at the end of the tunnel.

    "Banks will be able to raise long-term funds very soon by issuing local currency bonds that meet their funding requirements. At the same time, the petroleum industry represents the largest industry in the world in dollar terms. So it's exciting that Ghana will increase its participation in this very attractive industry," says Simon Dornoo, Managing Director of GCB.

    As a result of the global crisis, OPEC saw production fall by 7.3% in 2009. Oil prices dropped to a low of $34 per barrel in February 2009 before stabilizing in the second half of the year. In Ghana, the crisis led to an increase in non-performing loans (NPLs) and an erosion of portfolio quality. But unlike Nigeria, there were no major banking defaults. The system remains liquid and capital adequacy ratios have gone up significantly.

    "The world slowdown precipitated a pullout of investments in the stock market and a blocking of trade lines by correspondent banks. On the domestic market, bank lending rates spiked from 14% to 35% while Treasury bills went up from 11% to 29%. The situation has improved, but recovery has been slow because of the fragile global economy," says Dornoo.

    With a 90% target for local content through 2020, Ghanaian firms will play a leading role in the country's economic upswing. International oil companies (IOCs), are being asked to employ qualified locals in their operations, from upstream services to power provision and transportation. However, most domestic banks will initially focus on downstream activity.

    Competition in the banking sector is rife. Ghana is now seen as a source of banking profits and not just a curiosity. Gone are the years of insolvency, illiquidity and interest rate controls. Top players like GCB, with assets of $1.27 billion in 2009, Barclays, with $929.1 million, and Standard Chartered, with $924.9 million, are using Jubilee as a platform to higher growth

    Meanwhile, sub-regional banks have slowly reconfigured the map by competing on prices and standards. Togo-based Ecobank, with assets at $892 million in 2009, is now the 4th largest institution. It increased its capitalization to $69.9 million by transferring $2.86 million from its income surplus account and raising fresh capital. Profits were up 46.1% last year.

    Still, about half of the 26 licensed banks in Ghana are less than 10 years old. Some are undercapitalized and unable to participate in project finance. To bolster the banking system, the BoG now requires that all banks increase their capital to $17.1 million by end-2010 and to $41 million by 2012. Foreign-owned institutions were asked to raise capitalization to $41 million by December 2009.

    First announced by the BoG Governor in 2007, the hike in minimum capital requirements is meant to spur product innovation and encourage uptake of new technology. The higher reserves ratio will also shield Ghana from events such as the global downturn. Although it puts pressure on current bank earnings, the higher reserves ratio will increase profitability in the long run.

    Most foreign-owned institutions have increased their equity via injections from parent companies. Domestic banks have resorted to rights issues and private placements. According to BoG, a greater number of banks have met the new capital threshold than initially expected. But despite talk of industry mergers and acquisitions, little consolidation has emerged.

    In addition, the BoG has passed legislation that will make reporting standards more stringent. In June 2010, the central bank said risk management policies will need to be up to Basel II standards. Bank managers followed suite and launched additional measures to monitor currency and regulatory risks that could pose a threat. Many will need to recruit specialized risk analysts.

    For Dornoo, the most lucrative business strategy as of 2010 will be to climb up the value ladder into the midstream and upstream segments. So far, GCB is the financier of downstream activity handling 80% of loans at the country's single refinery. While international banks finance E&P, GCB will build on its strength as the best-capitalized domestic institution.

    "These are exciting times. I see a change in Ghana's economic fortunes as a result of the oil find. It offers significant growth and diversification opportunities. At GCB, we are repositioning the bank to take full advantage and we're open to exploring the business through strategic alliances," says Dornoo.

    Jubilee: The Prolific Offshore

     

    Left page: Eirik Raude Semi-submersible rig at the Jubilee field. Tullow operationsat Takoradi Port.

    Oil & Gas exploratoin in Ghana began in the 19th century. But as the country celebrated 50 years of independence in 2007, a major offshore discovery changed the course of history.

    Although the presence of hydrocarbons in Ghana's Western Region was first known more than a century ago, E&P activity was never at center stage. The industry began to take wings in the 1980s when a handful of companies intensified their exploration efforts in the offshore.

    Then came the discovery of Jubilee, a deepwater field in the Gulf of Guinea. Based on results from two exploration wells, a consortium of companies took an early decision to develop the field. With oil scheduled for delivery by end-2010, it represents a record time of 3.5 years from discovery to production.

    Jubilee, together with other offshore structures, has turned Ghana into a new oil province almost overnight. Known for its pragmatism and political stability, the country is gearing for momentous change. The receipts from the oil windfall are already being factored into economic growth. For 2011, the IMF has forecast real GDP growth of 20.1%, up from 4.5% in 2010.

    Since 2001, Ghana National Petroleum Company (GNPC) has intensified its promotional activities. Independent oil companies like Kosmos Energy and Tullow Oil began to notice the hydrocarbon potential, particularly in the deepwater acreage. It therefore came as no surprise when landmark finds were made in the deep offshore.

    Meanwhile, the Ministry of Energy has reviewed the royalty tax system to make the framework more attractive. In June 2010, a Petroleum Exploration & Production bill was submitted to parliament in an attempt to come up with a win-win formula. The draft bill will replace legislation dating to 1984. In the process, GNPC could become Africa's new role model for national oil companies (NOCs).

    A fledgling industry

    According to BP's Statistical Review of World Energy 2010, Africa was home to 9.6% of global oil & gas reserves in 2009. The continent produced 9,705,000 barrels per day (bpd), down 5.2% from 2008. The largest producer last year was Nigeria with output of 2,061,000 bpd.

    But in contrast to Nigeria, E&P in Ghana is still in its infancy. The country has four oil-bearing sedimentary basins: the Côte d´Ivoire-Tano Basin, including the CTP Sub-Basin, the Central (Saltpond) Basin, the Accra-Keta Basin and the Inland Voltaian Basin. Geologically, they are related to the separation of the West African and South American plates.

    "Ghana has long been known to have very good potential for producing oil & gas. It was first noticed in the late 19th century when seepages of hydrocarbons were found in certain areas of the western shore," says Nana Boakye Asafu-Adjaye, Managing Director of GNPC.

    Currently, there are 13 offshore licenses operated by various companies. According to GNPC, several other companies have submitted applications and are under consideration. Because Ghana is new to the industry, it practices an open door policy. There are no bidding rounds for oil concessions. Instead, E&P companies can apply for licenses year-round.

    For decades, the Saltpond Offshore Producing Company Ltd. (SOPCL) was the only oil producer. First discovered in 1970, SOPCL is located in a Devonian structure 13km offshore. It contains light oil of 36.7º API. After successive revisions of the joint venture agreement, the field was redeveloped by USbased Lushann Eternit Energy. Although potential remains high, the wells have so far underperformed.

    A Cretaceous structure

    Jubilee, a Cretaceous structure with total depth of 4,002m, is the largest deepwater find in West Africa in the last decade. Phase 1 data points to recoverable reserves of about 800 million barrels of light oil crude, with an upside potential of 1.8 billion barrels. The quality of the reservoir was apparent after drilling only two wells, with tests revealing oil of 37.6º API. The reservoir extends over 6km.

    "The upside potential of 1.8 billion barrels could be realized as more wells are drilled and the field is fully appraised. The reserves for Phase 1 development, which will focus on the unit area, are estimated at 278 million barrels," says Asafu-Adjaye.

    Following the creation of an integrated project team (IPT) in February 2008, Jubilee has been preparing for a phased production. The IPT is headed by GNPC, with a 13.76% interest in the first stage of production. Tullow Oil is the unit operator with an interest of 34.7%. Kosmos Energy is the technical operator with a 23.49% stake, while Anadarko holds another 23.49%. Sabre Oil & Gas, with an interest of 2.81%, and the Eo Group, with 1.75%, are the two minority partners.

    The development of Jubilee includes 9 production wells. Initially, the gas produced will fuel the Floating, Production, Storage and Offtake Vessel (FPSO) and the rest will be re-injected into the structure for pressure. The consortium expects to begin producing in November-December 2010. It will then ramp up output to 120,000 bpd over the ensuing 3-6 months.

    Phase 1 at Jubilee carries a price tag of $3.35 billion. "It's the first oil for Ghana, so this is a nation-changing, peoplechanging event that makes it world class. The size of the field is world class. The quality of the oil is world class. The quality of the reservoir is world class. It is generally a world class project," Dai Jones, Tullow Oil's General Manager in Ghana, said in June.

    One of the most innovative aspects of Jubilee is the way the oil will be lifted. The FPSO was designed to operate 20 years without any dry docking. The vessel, already moored over the field as of June 2010, has a plateau rate of 120,000 bpd and a gas injection capacity of up to 160 million meters of cubic feet per day (mmcfd).

    Built by MODEC in Malaysia, the turret structure of the FPSO is the largest ever built. By Q4 2010, the vessel will be fully connected to 40km of subsea flowlines. It is the ideal structure for a deepwater operation like Jubilee involving complex engineering.

    Phase II of Jubilee is slated to begin in 2014. By then, total daily output will have risen to 240,000 bpd and 240 million cubic feet of gas. Even better news is that the oil-bearing Greater Jubilee Area is larger than originally anticipated.

    Greater Jubilee Area

    "It is worth noting that there have been other landmark discoveries aside from Jubilee. The recent ones are at Owo, Tweneboa, Mahogany Deep and Odum in the Deepwater Tano block and West CTP, operated by Eni in partnership with Vitol. There is also the Dzata find in a block south of the Eni/Vitol block," says Asafu-Adjaye.

    The Accra-Keta Basin in particular has sparked new interest. The area from Tema to Ningo contains both shallow and deepwater acreage. GNPC recently signed an agreement with Australia's Tap Oil and US-based Challenger Minerals Ghana, working together with AFEX Ghana, an independent oil firm. Over the next 2.5 years, they will reprocess existing 3D seismic surveys and acquire 600km2 of new data.

    "We are very excited because after a period of low exploration activity in this part of the basin we are going into a new phase of exploration in an area that we believe deserves attention. All the key elements that favor oil & gas accumulation are present," says Asafu-Adjaye.

    In West CTP, Kosmos Energy, the Anadarko Corporation and Tullow Oil have also carried out an intensive drilling campaign. Vitol Upstream Ghana, a refinery and oil distribution company, is also based in CTP. At South CTP, Vitol is in charge of refinery and transportation of crude as part of a contract through January 2015.

    Meanwhile, Tullow Oil and Sabre Oil & Gas will explore the shallow waters of Tano. The fields were first discovered by Philips Petroleum in the late 1970s, but were not appraised until GNPC conducted studies in the southern basin.

    From left to right: Blackford Dolphin at Mahogany 2 block. Deepwater drilling from Eirik Raude. on board Eirik Raude.

    East of Jubilee, Kosmos first confirmed the offshore Odum discovery in 2008. Also located on the West CTP block, the Odum-2 appraisal well was found to contain 20m of net hydrocarbons in sandstone reservoirs about 4km northeast of the Odum-1 discovery well. Odum is 18km east of the Mahogany-1 exploration well at Jubilee.

    Kosmos Drillstem test of the Mahogany-2 appraisal using " Songa Saturn" drillship.

    As of December 2009, the company had drilled 9 consecutive exploration and appraisal wells. Reservoir fluids at Odum indicate the oil crude has a gravity of 18-19° API. A semi-submersible drill ship, the Atwood Hunter, drilled Odum-2 to a depth of 8,222ft. Odum-2 has since confirmed two of four oil and gas discoveries by Kosmos in Ghana's offshore.

    Tullow Oil has also announced a find of light oil in sandstone reservoirs at the Mahogany-4 appraisal well in West CTP, where the company has a 22.89% interest. Its main partners there are Kosmos and Anadarko, both of which hold a 30.87% interest. Tullow Oil is using this appraisal well to evaluate the lateral extent of Greater Jubilee.

    But it was Owo-1 well in the Deepwater Tano license that captured headlines in September 2010. At Owo-1, Tullow Oil has found 53m of net oil pay at a water depth of 1,428m. A sidetrack, drilled 600 meters east of the discovery well, hit on an additional 16 meters in the same channel system. Pressure data has confirmed a gross oil column of 200 meters.

    "The discovery of very material volumes of light oil in Owo and the fact that the oil is concentrated in high quality channel sands greatly enhances our outlook for the efficient future development of both the Owo and Tweneboa fields," Angus McCoss, Exploration Director at Tullow, told local press.

    New discoveries

    In Ghana, new discoveries have been made both prior to and after Jubilee. But not all blocks have been taken. According to Asafu-Adjaye, there is still open acreage at Saltpond, in Accra's offshore and in onshore Keta. Another relatively unexplored area is the onshore Voltaian Basin.

    "This onshore basin is underexplored even though there are several indicators of hydrocarbons observed in water wells. These areas offer opportunities for investment. I encourage companies to partner with GNPC to pursue them," says Asafu-Adjaye.

    Following the discoveries at Jubilee, Owo, Tweneboa, Odum and Sankofa, another recent exploration success is Dzata-1. Located 72km south of CTP and within a deepwater block, Dzata-1 has a total depth of 4,433m. It is the deepest well drilled so far in the Tano Basin and the first exploration well in the CTP Deepwater Petroleum Agreement Area, which covers a total of 5,164km2.

    In February 2010, Vanco Ghana and Lukoil Overseas made a discovery of oil and gas condensates there when they hit a 94m column of gross hydrocarbons at a depth of 3,653m. The primary reservoir lies at 3,663m and contains light oil and associated gas. Vanco holds a 28.34% interest at Dzata-1, Lukoil another 56.66% and GNPC has a 15% carried interest, with an option for a further 5%.

    Dzata-1 has set off a new prospective trend after the companies revealed the results of its reservoir fluids. Vanco and Lukoil are currently carrying out another 3D campaign on 1,664km2 for the northern and western Tano Basin. The finds in this area also mark Eni's reentry into Ghana, where the company had been active in 1970s.

    Eni Ghana Exploration & Production is now operating at Offshore CTP (OCTP) and Offshore CTP South (OCTPS). At both blocks, the company holds a 47.22% interest. In the summer of 2009, the Eni-led consortium drilled Sankofa-1 well on the OCTP block about 35km east of Jubilee. This area of the Gulf of Guinea could soon unveil some of offshore West Africa's largest finds.

    Natural Gas

    Although BP's Statistical Review of World Energy does not provide specific data for Ghana, Africa has seen its proven reserves of natural gas rise from 6.9% of global reserves in 1989 to 7.9% in 2009. At end-2009, they stood at 14.76 trillion cubic meters (tcm). Algeria, Egypt, Libya, Nigeria and the rest of the continent produced 203.8 billion cubic meters (bcm) last year, a 4.6% drop from 2008.

    In Ghana, the potential for natural gas is untapped. At GNPC, officials are busy making plans to deliver any surplus gas from the FPSO to a series of combined-cycle plants projected for Ghana's southern shore. But the gas shipments will be contingent on commercial viability. In the long term, Jubilee could send up to 70% of its associated gas for electricity generation.

    "Most of the discoveries that have been made in offshore Ghana have found both oil and gas. In the Jubilee field we will be producing about 120,000 bpd at plateau production and 120 million cubic feet of gas per day," says Asafu-Adjaye.

    The problem is infrastructure. There are no pipelines or export terminals in place. One of the GNPC's plans is to pipe it from the offshore wells to Takoradi where VRA operates a power plant that runs on Nigerian gas imported via the West African Gas Pipeline (WAGP). Another plan is to pipe it to Bonyere. Additional gas-fired plants and several IPPs are also in the works.

    "GNPC is currently developing a gas infrastructure project involving the building of a 60km pipeline from the FPSO to a skid-mounted processing plant to be located onshore at Bonyere. There, the wet gas would be processed and separated into dry gas and liquids. The dry gas will be piped to a power plant at the same location and the liquids exported," says Asafu-Adjaye.

    Meanwhile, work on an oil services terminal began at Takoradi Port in September 2009. Phase 1 of this project is valued at $50 million and should be completed by Q1 2011. Aside from warehousing space and transit sheds, it includes the pipeline that will bring oil crude from the offshore fields.

    Transparency

    Oil & gas exports are an opportunity for Ghana to showcase its transparency credentials. It was first accepted as a candidate country for the Extractive Industries Transparency Initiative (EITI) in September 2003. A final validation report was submitted in June 2010. A National Steering Committee has also produced an action plan outlining goals and key strategies.

    Given the spike in revenue forecast for 2011, government officials are working on a policy framework to manage the inflow of petrodollars. After a period of public consultations in February-April 2010, a draft bill was submitted to parliament. The legislation has adopted a royalty tax system as opposed to production sharing contracts. It is meant to make Ghana attractive to investors while building on GNPC's E&P strategy since 1983.

    According to the proposed bill, receipts from the oil & gas sector will be collected by the Ghana Revenue Authority (GRA) and then be turned over to a petroleum account at the Bank of Ghana (central bank). Quarterly revenue data will be made public. The Ministry of Finance, in turn, will report all petroleum transactions. Revenue will flow into a new stabilization fund and a fund for future generations, with balances in both invested abroad. Meanwhile, spending will be monitored by benchmark calculations.

    Another important policy component is local content. Oil from Jubilee should set conditions for local service industries to thrive. Officials would like to see civil work by Ghanaian companies reach a level of 90% by 2020. In the first phase of Jubilee's development, local content amounted to $9.5 million. It is projected to reach $14.5 million in its second phase.

    "My vision for Ghana is for the country to take advantage of these deepwater discoveries to establish a world-class oil & gas industry that will drive local industrial and social development," says Asafu-Adjaye.

    The Groundwork

     

    From left to right: Tullow controlling take-off. Cirrus Oil Tank Farm and Loading Ganry in Tema. Tema Port container terminal.

    By the time oil production ramps up, Ghana will have the large-scale downstream infrastructure in place. In the meantime, smaller projects are meeting market demand.

    The offshore oil discovery in Ghana has set off a series of infrastructure projects designed to match Ghana's new status as regional powerhouse. If all goes according to plan, the country will begin exporting oil crude by Q4 2010. Sales of electricity could also be a reality with the coming online of the West African Power Pool (WAPP). The missing factor in the equation is strategic infrastructure.

    Left: Busy times at Takoradi pipe yard. Right: Meeting demand from Cirrus Oil Tank From in Tema

    With 7% annual growth in electricity demand, investing in combined cycle plants is now a priority. The government is financing the construction of thermal plants to raise electricity penetration rates to 85% by 2015. Market deregulation will facilitate the entry of private investors via independent power producers (IPPs). At the same time, the seaports of Tema and Takoradi are being retooled to fill a market niche for oil & gas services in West Africa, as well as for containers.

    But the lifecycle of large-scale projects such as these is riddled with feasibility studies, financial engineering and knowledge transfer. As a result, local companies are carrying out small-scale projects in a bid to complement the facilities already on the ground. This puts them in an ideal position to partner with foreign firms interested in an economy in full expansion.

    Infrastructure upgrades

    By end-2010, industry observers forecast growth of 30-40% in Ghana's weekly consumption of diesel, up from the current level of 17,000-19,000 metric tons. Demand for gasoline, currently at 9,000-10,000 metric tons per week, will also ramp up accordingly.

    In terms of electricity distribution, public utilities like the Northern Electricity Department (NED) and the Electricity Company of Ghana (ECG) have long suffered from under-investment. Plant equipment is often obsolete and the grid is short on back-up plans during unplanned outages. The result is an irregular power supply, with industrial customers and households paying the price.

    According to officials at ECG, the main distributor of electricity in southern Ghana, the company will require $180 million worth of investments to keep up with demand in the most heavily populated areas. So far, ECG has only been able to mobilize $30 million from its internal resources. The government has signaled it will provide funds to finance upgrades.

    Upgrades are also expected in seaport logistics. Ghana needs to increase its cargo handling capacity at key ports to capture a larger share of subregional trade in West Africa. Marine terminals and dry docks are gearing up to compete on costs with rival transshipment hubs in the Gulf of Guinea. Again, Ghana's transparency credentials could turn ports along the coast into gateways for landlocked neighbors.

    Capacity builders

    Success in the commodities trade often rests on ownership and operation of key facilities. In the oil & gas sector, this means pipelines, refineries, storage tanks, gantry cranes, roads and seaport terminals. Ghanaian companies have evolved over the years from simple tasks like bunkering to full-fledged downstream operations.

    By building their own jetties and terminals, they did not set out to become logistics specialists. But the infrastructure has developed their core business in a country that is still relatively new to the oil & gas industry. It has also been a way to anticipate the changes that will take place in Ghana as of Q4 2010, when oil exports are scheduled to begin.

    The main stumbling block has been finance. Domestic banks have been unable to extend long-term credit to Ghana's private sector. Low levels of capitalization need to evolve toward the type of cost-heavy projects that Ghana requires.

    "There are big opportunities coming up with the oil & gas discovery, but the industry is very capital intensive. In terms of partnerships with foreign companies, we are open to talk with anyone and will pick the deals that we feel constitute a win-win situation," says John Taylor, Executive Director of Cirrus Oil Services.

    Cirrus Oil Services started out as a service provider for Vitol SA in 1999. A subsidiary of Cirrus Energy, it has risen from supplier to terminal operator. Today, it is a 100% indigenous petroleum trading company with a license to store refined product.

    The company holds approximately 33% of the downstream sector. Cirrus imports industrial amounts of oil crude, diesel, gasoline and liquefied petroleum gas (LPG). It then resells the petroleum products to mining companies, civil aviation, public utilities and offshore operators. It also exports naptha and fuel oil to the Sahel region through Trigon Energy, a business affiliate.

    Before 2005, all downstream activities were carried out by the stateowned Tema Oil Refinery (TOR) and the Bulk Oil Storage & Transportation Company (BOST). New regulations by the National Petroleum Authority (NPA) later opened the door to companies like Cirrus to complement public sector activity. This lay the ground for more competition in the sector, which led to further infrastructure build-out.

    Cirrus currently operates tank farms in Tema and Takoradi, both in southern Ghana. The first has been operational since 2008 and has capacity for 30,000 metric tons of diesel, gasoline 91, gasoline 95 and aviation turbine kerosene. The company plans to expand its facilities there. The Takoradi terminal, focused on diesel, opened in February 2010 with capacity for 30,000 tons.

    Cirrus could soon set aside additional space for gasoline at Takoradi. The reason for diversifying into other refined products has to do with the implementation of a new zoning program for the distribution of petroleum products. According to the NPA, certain areas will be designated as regional supply hubs. They include both Tema and Takoradi in the south, as well as Kumasi in the north.

    "At Cirrus, we're ready to embrace this initiative and we believe that we are well-positioned to play a key role in this with Tema and Takoradi being our initial main hubs. We will however consider building tank farms in the Ashanti and Northern regions to cater to those zones in the appropriate time," says Ivy Apea Owusu, General Manager for Commerce at Cirrus.

    More infrastructure plans are in the offing. Cirrus is tracking the dynamics in the industry to ensure Ghana will take advantage of the opportunities derived from its economic takeoff.

    Bulk distribution

    Fueltrade embarked on its own business of importing and redistributing refined product. It is the third-largest bulk distributor of gasoline, diesel, jet fuel, kerosene and LPG in Ghana. The company carries out monthly deliveries of 30,000-40,000 metric tons of diesel and 30,000 metric tons of gasoline. Bulkship & Trade is a sister company licensed by the NPA as an oil trading company.

    "The motivating aspect of Fueltrade's downstream operations, which began about a year ago, is that our startup cargo of 30,000 metric tons of diesel was sold in a record time of 15 days. Our operations have since increased and our market share with Total Ghana has grown to 30%. We also supply about 60% of diesel requirements at Goldfields. Fueltrade is known for timely supply and reliability," says Chief Executive Chris Chinebuah.

    Fueltrade sources its refined white products and LPG from Mercuria Energy and Geogas Trading, both based in Geneva, Switzerland. Initially, the imports were sold directly to TOR. But sales have now expanded to oil marketing firms, including IOCs like Total and Shell. The company meets 70% of national requirements for LPG, but holds more than 25% of overall market share in oil & gas services.

    "One of our handicaps, however, has been storage. In January 2010 we embarked on the construction of a medium-sized tank farm for gasoline, gasoil and LPG. The tanks, which will be built on 13.5 acres of land, have the following capacity: two diesel tanks with a total capacity of 40,000 m3, one gasoline tank with capacity of 40,000m3 and two market tanks for gasoline of 5,000m3," says Chinebuah.

    Financed by Intercontinental Bank, the new farm near the TOR will cost $38 million and is expected to be delivered by Q3 2011.

    "We have opted for the latest storage tanks for LPG known as Mounded Gas Bullets. They are more environmentally friendly and comply with EU regulations," says Chinebuah.

    It makes Fueltrade the first company in Sub-Saharan Africa to invest in this kind of technology. Once the project is finished, Fueltrade plans to expand into other West African markets.

    Seaport expansion

    "The discovery of oil & gas will revitalize economic activity in Ghana's Western Region and it will impact the Port of Takoradi both directly and indirectly," says Nestor Percy Galley, Director General of Ghana Ports and Harbour Authority (GPHA).

    Historically, the seaport of Takoradi has served as the country's main dry bulk cargo terminal. As of 2010, it handled 76% of Ghana's total cargo traffic. Exports, which accounted for 63% of cargo handled, consisted of manganese and bauxite ores, lumber products and cocoa beans. Imports, accounting for 37% of cargo, were mostly containerized goods.

    Meanwhile, the seaport of Tema has specialized in imports. In 2009, imported goods accounted for 77% of overall traffic there. Containers represented 57% of total traffic, followed by dry bulk (17%), conventional cargo (15%), liquid bulk (8%) and frozen cargo (3%). Since 2007, the share of liquid bulk has eroded due to the construction of the Tema Offshore Mooring Facility, which serves oil & gas needs.

    GPHA thinks Tema could soon develop into a maritime hub for landlocked countries like Mali, Burkina Faso and Niger. By improving port performance and productivity, it could become a trade facilitator for the entire ECOWAS. In accordance with the Ghana Trade & Investment Gateway Project, operators are targeting 20 crane lifts per hour. But competing on costs may be the clincher: GPHA intends to slash prices for container handling from $168 to $80.

     
     Cargo vessel at Tema Port.

    "In the long term, GPHA's goal is to transform Takoradi into an international oil & gas services hub. The Port of Takoradi will then be in a position to serve downstream players across West Africa," says Galley.

    GPHA officials now have to factor in a whole new industry that requires deeper access channels, a new harbor basin and the construction of oil service terminals. GPHA is currently reviewing the master plan of the seaport expansion. But while new infrastructure is built, it has leased terminals to private operators to manage the transition more effectively.

    The expansion of the seaport began in March 2007 with the Golden Jubilee Terminal (GTJ). The new terminal was designed as a back-up for Takoradi's main container facility. It served to decongest the waterfront and lay the ground for the emerging transshipment business in West Africa. But with the global financial crisis, cargo traffic dropped precipitously, as it did worldwide.

    With the country's new status as net energy exporter, time is of the essence at Takoradi. Among the infrastructure projects in the revised master plan, GPHA will expand the main breakwater, build a new pier for dry and liquid bulk, develop a terminal exclusively for oil & gas, and relocate the existing cargo terminals to make space for energy-related facilities.

    Pipelines

    Pipelines are the lifeblood of energy exports, but they are also expensive feats of engineering. The initial supply stations for the West African Gas Pipeline (WAGP) are in the Niger River Delta, where the product is injected into the line. Storage facilities, pumps and compressors have been built to move the natural gas through the network.

    The WAGP was one of the missing parts in Ghana's economic repositioning. It is now on the ground and on the ocean floor providing cheap Nigerian gas to thermal plants along the way. With capacity for 5 billion cubic meters (bcm) per year, it is a game changer.

    The main customer of WAGP will be the Volta River Authority (VRA), which will require 120 million cubic feet of gas per day. With more thermal plants under construction in Takoradi and Tema, the VRA will thus be able to meet additional demand.

    In Ghana, Project Development International (PDi) worked on the $16 million Trafigura expansion project. Completed in July 2007, an 18-inch pipeline that already existed was taken from the TOR 4.5km offshore and linked with a 6km inland pipeline leading to the Accra Plain Depot (APD).

    The onshore extension included the construction of a booster station consisting of pumps, metering skids and product tanks. An export pumping station and receiver was also built at the end terminal. A product of team work between British, Greek and Ghanaian experts, the project facilitates both imports and exports of hydrocarbons.

    As the oil & gas industry develops, Ghana is increasingly tilting toward the public private partnership (PPP) model. The business model helps take the load off the government and reduces public borrowing costs. Foreign investors in partnership with Ghanaian firms can then undertake large-scale projects.

    Given the low base of infrastructure development and the upcoming sales of oil & gas, inputs from the private sector will ensure that all the groundwork is commensurate with the country's new status as regional energy exporter.

    A Power Injection

     

    The discovery of oil & gas will take the load off of hydroelectric power along the Volta River.With an interconnected grid, Ghana now lies at the heart of an electricity market of 251 million consumers.

    Right: WAGP installations in Niger River Delta. Left and above: WAGP substation.

    Electricity may be an intangible asset, but in Ghana it holds the key to GDP growth. With the discovery of oil & gas, electricity markets have been given a shot in the arm. Gas from Jubilee will be used as feedstock at thermal plants that currently run on expensive oil crude. This could free up the load at hydroelectric dams and turn the country into a net exporter of electricity.

    Meanwhile, the West African Gas Pipeline (WAGP) could help solve subregional demand. Natural gas from the Niger River Delta began to flow west via WAGP in the first half of 2010 and now supplies a plant operated by the Volta River Authority (VRA) in Takoradi. The savings for Ghanaian utilities are in the millions of dollars per month.

    But the real booster for electricity markets will be in the shape of deregulation. By separating generation from transmission, the government has opened the field for independent power producers (IPPs). Structural reforms could place the country at the center of the Economic Community of West African States (ECOWAS), a market stretching from Senegal to Nigeria.

    Still, electricity penetration in Ghana remains at 50%-60%. Government officials want to see the figure rise to 85% by 2015 and expand total installed capacity to 5,000MW. By then, four years of revenue from oil & gas exports will have generated enough funds to finance network upgrades.

    Volta River Authority

    The VRA was set up in 1961 to harness hydropower in Lake Volta, the largest artificial reservoir in the world at 8,502km2. After building the Akosombo Generating Station in 1965, VRA began to provide power to homes and businesses. In 1972, two more generation units were added. Ten years later, a second station was opened at Kpong, 30km downriver.

    As of 2010, VRA operated a total installed capacity of about 1,856MW. To reduce its reliance on Lake Volta as a result of climate change and seasonal droughts, VRA has been investing in smaller thermal plants that are able to meet peak loads around the country regardless of seasonal variations. Its ultimate goal is to expand generation capacity and maximize profits.

    "There are three or four other sources of hydroelectric power that could add 600MW-700MW. That's why we need to start looking at other energy sources. If hydroelectric power begins to taper, thermal plants are the likeliest candidates," says Kweku Andoh Awotwi, Chief Executive of VRA. As the largest power generator in Ghana, it is also up to VRA to keep up with national demand.

    According to Awotwi, loads jumped by 10% in 2009, up from the 6-7% growth registered in the previous six years. The takeoff of the oil industry and its impact on the wider economy will keep electricity demand growing in double digits.

    "The coming of gas is very important to us and we are very keen to see it happen," says Awotwi.

    Having indigenous resources in Ghana provides VRA with a new competitive tool. Cheap natural gas will replace the more expensive light oil and diesel currently in use at thermal plants. In terms of gas infrastructure, having a customer like VRA that needs shipments and can pay in cash is a strong incentive for project finance to be approved.

    "There will be other IPPs coming in, but they are not yet here and we are. In the long run, the fact is that gas-fired power will be the lowest-cost power in the region. When you have countries like Liberia, Sierra Leone, Mali or Burkina Faso paying high prices of up to 45 cents per kilowatt hour, they will be delighted to get some of this gas-fired power," says Awotwi.

    To date, the only combined cycle plant in Ghana is the TTPS in Aboadze (330MW). The Takoradi International Company (TICO), a joint venture with the Abu Dhabi National Energy Company (TAQA), runs a 220MW simple cycle thermal unit. TICO may soon be converted into a 330MW combined cycle unit.

    In 2008, VRA also commissioned Tema Thermal 1 (TTP1) in southeastern Ghana, with capacity for 126MW. The Tema Thermal 2 plant (TTP2), with capacity for 50MW, was 96% complete in the first half of 2010. VRA is also overseeing a 122MW facility (TTP3) with Canadian investors. Meanwhile, the Kpone gas-fired facility (220MW) is scheduled to go online this year.

    "In each of these, the government has originated the funds. But the VRA will be in charge of running the projects, finding partners and whatever we think is best. All of these projects would be ideal for private sector participants," says Awotwi.

    Market overhaul

    Lake Volta gave Ghana a head start in the 1960s by providing costeffective hydroelectric power to the domestic economy. But with a population currently at 24 million and growth in electricity demand at 7% per year, VRA officials think market deregulation is crucial to attract private agents. Deregulation would open the door to IPPs and provides incentives to invest in infrastructure.

    In 2005, the Volta River Development (Amendment) Act set up an independent utility for electricity transmission: the Ghana Grid Company (GRIDCo). VRA thus became solely responsible for electricity generation. The goal was to allow market forces to channel private investment through IPP projects.

    "We used to be primarily responsible for the electricity supply of the country according to the 1961 Act. This has since changed," says Awotwi.

    GRIDCo was incorporated in December 2006 with a mandate to ensure adequate power transmission while balancing the output at VRA plants with IPPs. It has been operational since 2008 after its core staff transferred out of VRA.

    As a public utility, GRIDCo is tasked with providing electricity to bulk customers like ECG and NED, as well as to the mining companies. It operates 4,000km of transmission lines carrying power from various generation points to 43 transformer stations. At the substations, power is scaled down from 161kV to 34.5kV for its major bulk customers.

    "We're expanding the network capacity so that it's endowed with the level of redundancies required to run a first-class power system. We're also building a new substation in Tema together with the private sector and another one in Kintambo, up country, to penetrate rural communities. This will improve the lives of locals as well as the business environment," says Charles Darku, CEO of GRIDCo.

    The critical issue will be finding capital to finance network upgrades over the next 5 years. According to Darku, an estimated $1 billion will be needed to bring the transmission infrastructure up to international standards. As of July 2010, the company has an ambitious 5-year investment strategy. Bids have already been submitted by private operators.

    Linked grids

    In terms of commercial strategy, GRIDCo is looking to develop high-voltage interconnections to sell power beyond Ghana's borders. It would put the Ghanaian utility at the center of ECOWAS, a potential market of 251 million consumers.

    The West African Power Pool (WAPP) is backed by engineers that recognize the advantages of lower cumulative electricity reserves. When WAPP was approved by the Heads of State of ECOWAS in January 2006, savings was a major issue. In its initial phase, the $174 million project will allow for electricity trades of up to 130MW between Ghana, Burkina Faso and Mali by 2015

    For Ghana, WAPP is the perfect market link to the power-hungry countries of the Sahel. With an installed capacity target of 5,000MW in Ghana by 2015, policymakers think gas-fired thermal plants will meet domestic demand and generate enough electricity to be exported north into Burkina Faso and Mal

    GRIDCo is currently working with WAPP officials to complete a 330kV interconnection point from Obuasi to Tema. The second one will run from Tema to Mome Hagou in Togo and onward to Benin. Soon, double-circuit powerlines will link the major regional economies, with VRA and GRIDCo playing prominent roles.

    "If we get this link done we'll have a major coastal backbone which can revolutionize power distribution in West Africa. After we reinforce the grid from Prestea in Ghana to Abobo outside of the capital of Côte d´Ivoire, the sub-region will be linked from Abidjan to Accra and all the way to Lagos in Nigeria," says Darku.

    West African Gas Pipeline (WAGP)

    VRA and GRIDCO have recently gained access to a steady source of natural gas from Nigeria via the West African Gas Pipeline (WAGP). The 678km gas conduit runs from the Niger River Delta to Ghana. At a cost of $974 million, it is the first cross-border gas system in Sub-Saharan Africa.

    WAGP harks back to 1982 when ECOWAS first proposed the concept. The World Bank carried out a feasibility report in 1991 and deemed it commercially viable. With capacity for 5 billion cubic meters (bcm) per year, the first gas deliveries were expected at end-2009. But social disruption in the Niger River Delta, along with moisture in the network, delayed the project until the first half of 2010.

    "These are very exciting times for the WAGP. The flow rate is now at about 30 million cubic feet per day, which generates 110MW of electricity at the thermal plant in Takoradi. Once a compressor station is built in Nigeria, we will have capacity to pump more gas into Ghana," says Jack Derrickson, until recently the Managing Director of the West African Gas Pipeline Company (WAGPCo).

    WAGPCo is a consortium in which Chevron holds a 36.7% stake. Other stakeholders are the Nigerian National Petroleum Corporation (25%), Royal Dutch Shell (18%), VRA (16.3%), the Société Togolaise de Gaz (2%) and the Société Beninoise de Gaz (2%). Its main customer is VRA, which will require 20 million cubic feet per day, according to Derrickson.

    The discovery of Jubilee in Ghana's offshore in 2007 has suddenly raised the stakes. Alone in Phase 1, Jubilee is thought to contain 270 billion cubic tons of natural gas. VRA will need additional gas to operate the 330MW combined cycle plant at Aboadze outside of Takoradi. If the TICO thermal plant is finally upgraded to a 330MW combined cycle facility, it too will be relying on gas, either local or Nigerian.

    "It's going to take a couple of years before the gas begins to flow at Jubilee. Also, it's not going to be cheap or free because it costs money to install a pipeline and gas plants. Either way, there is plenty of demand in the sub-region to absorb gas from both WAGP and Jubilee," says Derrickson.

    Green empowerment

    Ghana is changing the map of African power markets. A beacon of stability in West Africa, it is not only seizing the opportunity to raise installed capacity through conventional means, but also by exploring renewable sources. The VRA has committed to making wind and solar energy 10% of its total portfolio.

    The Ministry of Environment, Science & Technology is planning to install a solar farm in the country's north to provide electricity in rural areas. Some clinics in Yendi Municipality already rely on German-made photovoltaic (PV) cells. In some farming communities, solar-powered pumps are being used for irrigation.

    Ghana's parliament is currently debating a renewable energy bill that would open the door to foreign companies. The legislation addresses the complex feed-in tariffs that would guarantee competitive prices for renewable sources. German investors are already scoping for business opportunities in Accra as a gateway to the region.

    Meanwhile, wind farms off the coast could soon coexist with oil platforms in the Gulf of Guinea. The Kwame Nkrumah University of Science & Technology (KNUST) has jumpstarted the idea with several ministries together with German and Dutch investors. With right wind speed and density, Ghana could thus set a new trend in Sub-Saharan Africa.

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