Jubilee Woes Leave No Room For Cheer As Gas In Doubt


The US$700mn project to capture associated gas from Ghana's Jubilee field i n order to meet domestic demand is in jeopardy , as the firm developing the project - China Petroleum & Chemical Corporation (Sinopec ) - warned the Ghanaian government is failing to meet its fin ancial obligations. Sinopec has threatened to exit the project should financial woes continue.

In order to preserve lucrative oil export volumes, Ghana is attempting to diversify its power production sources away from oil and h ydroelectricity. The government intended to use cash from a US$3bn loan from the China Development Bank (CDB) to invest in gas infrastructure, including the construction of a 36km shallow-water offshore pipeline from the Jubilee floating production and storage unit (FPSO) to a new gas processing plant in the western region of Bonwire. The facility will then be connected to the Aboadze power plant via a separate 120km onshore pipeline.

According to local reports, the construction contract has been awarded to Houston-based INTECSEA , a subsidiary of the WorleyParsons Group . The project was due to come online in late 2012/early 2013 and anticipated gas production would plateau at approximately 1.55bn cubic metr e s (bcm) . However, prior to the most recent developments with Sinopec , the project had already been delayed to H213, on the back of reported difficulties in procuring equipment for the plant as well as trouble d finances at the Ghana Gas Company .

Reports of problems in bringing the Jubilee gas project online were already a concern, with Ghana's existing source of gas - imports via the West African Gas Pipeline (WAGP) fed by Nigeria - also offline. The absence of gas supplies in Ghana has led to nationwide load shedding and a higher import bill, as the country was reportedly spending US$200,000 daily on nearly 20,000 barrels per day (b/d) of crude oil as feedstock for four power plants in order to meet domestic demand. Underscoring the impact on regional relations, during a December 2012 visit Ghanaian President John Dramani Mahama pleaded with his Nigerian counterpart to resume flows through the WAGP pipeline as quickly as possible and to increase the long-term reliability of the import link. The pipeline, offline since August 2012, was still offline according to the latest information available, despite a March 2013 target date for flows to resume.

Gas Crunch Fuels Demand For Jubilee As Project In Doubt
West Africa Gas Pipeline

However , uncertainty now surrounds the d at e at which first gas from Jubilee will flow and alleviate Ghana' s current shortfall. Although the CDB provided Ghana with a loan - a move that was criticised by some observers wary of a reliance upon funding from the Asian giant - initial construction work was pre-funded by Sinopec. This includes the Atuabo gas processing plant where Sinopec asked around 50 Ghanaian employees to cease work until further notice and has withdraw n all heavy equipment as the payment row deteriorates.

With construction now halted and Sinopec threatening to exit the project completely, there is now sizable downside risk to our forecast that Jubilee would begin production this year. Ghanaian officials have sent a delegation to China to resolve the row, and given the shortfall in current supply, Ghana will likely be eager to find a solution to the current setbacks. Yet, reflecting the likelihood of further delays, we have now pushed back our forecast for first gas from the Jubilee field from 2013 to 2014.

Ghana Struggles To Produce Gas
Natural Gas Consumption & Production, 2010-2022 (bcm)

With a number of gas-rich prospects already identified offshore, Ghana's gas potential is not in doubt; however, the current row highlights the growing pains in the monetisation of hydrocarbon resources in frontier markets. Indeed, lower than expected output from the Jubilee field resulted in lower than planned revenue for the government, reflecting the consequences of production woes on the budgets of small producers.

Equally, the high costs of infrastructure to monetise associated gas, much of which is flared in oil producing regions across West Africa and elsewhere, is another notable takeaway as countries look to cut flaring and use gas to address chronic power shortfalls. The key constraint remains not an absence of natural resources, but an absence financial resources and incentives to capture and process gas.

This article is tagged to:
Sector: Oil & Gas
Geography: Ghana