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As We Turn On The Oil Taps…

  • SOURCE: | qwesa2big
  • The day’s significance is that a century-old dream becomes a reality – for better or for worse. But as many a Ghanaian is wont to quickly point out, it is a blessing for which the jubilations on the day must be unfettered.

    It must be an expression of our utmost thanksgiving to the Creator of the universe who deemed it fit to endow our country with the primary source of energy that runs global industry today.

    Never mind that initial output is estimated at a maximum of 60,000 barrels of oil per day (bopd), production is expected to peak at 120,000bopd by the first quarter of 2011, and run till about 2014 when new field developments will ramp production up to about 250,000bopd.

    Considering that Jubilee has been appraised as holding a minimum of 1.5 billion barrels of oil, the country could be looking forward to a minimum of 25 years of oil production – a long enough time for Ghana – through prudent utilisation of revenue streams from the operations, estimated to average US$1billion annually over the term – to uplift the national economy and the well-being of Ghanaians.

    The more interesting part for the country is that – subsequent to the discovery of Jubilee by the small Texan explorer, Kosmos Energy, in July 2007, many more significant finds have been made in Ghana’s offshore: including the Mahogany Deeps, which underlies the current Jubilee Field; Odum; Tweneboa; and Owo, all on blocs operated by the Jubilee partners which include the Ghana National Petroleum Corporation (GNPC), Tullow Oil, Anadarko Petroleum, E.O. Group and Sabre Oil & Gas Ltd.

    Yet another significant find is the Dzata prospect operated by Russian exploration and production (E&P) firm Lukoil, in partnership with Vanco Oil. All those prospects mean – if the economics and technology are right, Ghana could be looking at higher oil output levels as well as a longer than a 25-year hydrocarbons industry…and of course the earnings could also be higher than the current one billion dollars-a-year estimate.

    But the excitement is not limited to Ghanaians. Indeed, the Jubilee Field operators seem to have more reason to be frenziedly partying on the day. Despite their stature as small E&Ps – probably excepting Anadarko, which has extensive operations in the Gulf of Mexico – they have succeeded in pulling off a world-class field development (employing state-of-the-art technology) on a world-class field, in record time (approximately 40 months from discovery to production).

    After noon today, when the taps of commercial oil production would have been turned on, they can heave a sigh of relief as they will now be in a position to reap healthy returns on their investments – and thus be able to commence paying off their creditors, providing healthy dividends to their shareholders, and making a decent living for themselves.

    But beyond the celebrations of the day, the emerging hydrocarbons industry has some significant implications for the country, which cannot be glossed over. ImplicationsIrrespective of the fact that oil revenue is not going to be a dominant contributor to the country’s GDP (just under two percent of total GDP) for some time, Ghana’s budgetary processes could experience rude shocks and consequential political, and possibly social, upheavals should world crude oil prices decline from the current region of US$75 to around US$60pb, as is being speculated in some important quarters.

    Since Ghana has just legislated that 70 percent of oil revenues should be channeled through the budgetary processes rather than being tied to specific projects, as well as the possibility of government using future oil revenue streams as collateral for loans for current investments in critical infrastructure (and probably for recurrent expenditure, knowing our track-record), we could find ourselves in a dangerous situation in case of imprudent decisions on oil revenue management. This should immediately be a wake-up call to us – that in an oil economy, any form of recklessness could be disastrously harmful.

    Closely tied to this challenge is that of managing the bloated expectations of ordinary citizens who think the oil sector will immediately provide them with much-needed job opportunities, as well as dramatically transforming their livelihood for the better – not to mention traditional chiefs of the host communities seeking to make some political gains out of the whole oil hype.

    And quite apart from Ghanaians hoping oil will be a panacea to their economic challenges, victims of an impoverished neighbourhood will be drawn into the country like flies to a carcass – thus aggravating difficulties already confronting the country in managing urbanization.

    Obviously, the Jubilee operations on its own may not be a game-changer for the country despite it being the catalyst drawing more international interest to Ghana’s offshore – where increased exploration activity is expected to inject approximately US$10billion into Ghana’s economy over the next couple of years.

    All indications are that the utilisation of some 600,000 cubic feet of associated gas daily from Jubilee, coupled with the development of other gas-fields in the country to create a petrochemicals industry, is what could dramatically change the economic fortunes of Ghana.
    Shamefully, however, despite numerous assurances from authorities, the gas infrastructure which would make effective GNPC’s policy of zero gas-flaring has not materialised alongside oil production, thereby prompting the authorities to announce an 18 month period of flaring.

    Of course gas-flaring has its downsides, including environmental pollution, but it would seem, on the balance, it is the better option against full re-injection of the gas back into the well. To do so may either compromise the well’s integrity or, over time, reduce the quantity of oil pumped out as the oil/gas ratio skews heavily towards gas inside the well and consequently reflects the same proportion of hydrocarbons drawn out.

    Re-injection of gas would mean a higher risk of lower revenues from oil. This certainly is not appealing to both Jubilee partners and government.

    The earlier the gas infrastructure issue is resolved, the better will the country be positioned to maximally utilise its oil and gas resources to transform the country into a modern, industrialised economy.

    Delays in the development of the gas infrastructure notwithstanding, Ghana is on the cusp of a brighter future, as demonstrated by how the emerging oil and gas sector has been handled so far.

    Naturally, there have been machinations and scheming – at times rather vicious – but reason has always prevailed. Public forums across country and across various sectors of society have allowed, to a large extent, an open discussion of matters relating to oil revenue management, local content and local participation – as well as the crafting of a new petroleum law to reflect Ghana’s changed status from an oil backwater to a prolific territory.

    Having had the benefit of being a latecomer into the oil producing club, the country has had the good fortune of learning from the experiences of others; both the failed oil economies and the successful ones.

    Given serious differences remain between government, on the one hand and civil society and the opposition parties on the other, with regard to last moment changes to clauses in the two petroleum bills presented to parliament, a relatively enlightened citizenry seems ready to keep government on its toes.

    Oil and gas definitely comes with burdensome challenges in its wake, but it also presents opportunities to producing countries that are well-prepared to manage the resource prudently.

    Ghana, by all standards, seems to be doing all the right things – even if below expectation in certain aspects – and that certainly justifies jubilation as we turn on the taps that usher us into, hopefully, our brilliant future.

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