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Assessing WAGP intervention in Ghana’s gas supply

  • SOURCE: | qwesa2big
  • West Afria Gas

    The recent cessation of Nigerian gas supply to Ghana through the West African Gas Pipeline (WAGP) in September 2014 effectively worsened the already fragile energy situation, with dire financial consequences for electric power producers, businesses and industry.

    The situation, which was due to labour unrest in Nigeria, has since returned to normal — but it denied Ghana 180 MW from the solely gas-fired Asogli thermal power plant. This is against the background that both Bui and Akosombo Dams are currently experiencing low water inflows, with a planned retrofit project on-going at Kpong hydro.

    The situation highlights the high security risk associated with reliance on Nigerian gas, given the present WAGP infrastructure design and investments in gas resources in the Niger Delta Region of Nigeria; so what strategic policy direction must Ghana evolve, looking into the future?

    Since April 2009, when VRA generated power with first free-flow natural gas from Nigeria, the performance of the WAGP has fallen short of expectations with gas supplies erratic and bedevilled with low pressure, whilst contracted volumes have decreased year on year as of 2011.

    According to the World Bank (2014), in 2010 WAGP delivered an average of 36 million standard cubic feet per day (MMscf/d) of gas to Ghana.

    The figures for 2011, 2012 and 2013 were 78, 42 and 32 MMscf/d respectively against contracted volumes of 133 MMscf/d. As a result, VRA spends over US$50million every fortnight to buy 450,000 barrels of light crude (LCO) oil to keep thermal plants running (VRA Newsletter, 2014); Ghana’s current gas requirements is estimated at over 300 MMscf/d.

    The World Bank (2014) argues that despite the existence of a contractual framework envisaged to bring commercial discipline and supply-side commitment to ensuring uninterrupted gas supplies to Ghana, Togo and Benin; N-Gas or NGC (Nigeria Gas Company) has never kept faith, regardless of the potential to jeopardise the WAGP project development objectives.

    This notwithstanding, parties on the off-taker side including the Volta River Authority (VRA) have kept to their payment obligations to gas suppliers. Nigerian NNPC, Chevron and Shell owned N-Gas and WAGP signifies one of the first Public Private Partnership (PPP) initiatives for large infrastructural development in West Africa under ECOWAS.

    WAGP operator, the West African Gas Pipeline Company (WAPCo) is owned by Chevron West African Gas Pipeline Limited, 36.9 %; Nigerian National Petroleum Corporation (NNPC), 24.9 %; Shell Overseas Holdings Limited, 17.9 %; and Takoradi Power Company Limited, 16.3 %; Societe Togolaise de Gaz, 2%; and Societe BenGaz S.A. with 2% (Shell, 2011).

    Following the change of government in Ghana in 2001, there was a shift from GNPC participation to VRA (This Day, Lagos, 2001). The set up of WAPCo and the actors involved (the majority of whom double as partners in N-Gas vis-a-vis their commitment to domestic gas supply in Nigeria) scuttles gas supply agreements and places WAGP gas supplies under the goodwill of NNPC and its N-Gas partners.

    According to Dr. Nduom (2004), then Minister of Energy, the WAGP project offered Ghana long-term energy security through the provision of natural gas from the Niger Delta, reduced cost of electricity generation through reduced fuel cost, and cost savings of over US$600million spread over a 20-year period. Ghana’s equity share in the project was estimated to generate an expected net present value of over US$85million at 10% discount rate (GNA, 2004). However, gas supplies through the West African Gas Pipeline (WAGP) have been very appalling.

    This notwithstanding, Nigerian gas is still very strategic to Ghana’s energy needs and development aspirations. Nigeria flared 1,406 MMscf/d (515 bcf) in 2011 (EIA, 2014). This is even higher since according to Business Day (2013) Nigeria currently flares an average of 3,687 MMscf/d (1,350 bcf) of gas daily out of its 187 trillion scf of proven gas reserves — the second highest in the world after Russia (World Bank, 2014). Nigeria’s unproven gas reserve is estimated at 600 trillion scf (Business Day, 2013), sufficient to meet the energy needs of Ghana and West Africa.

    Moreover, Ghana’s current gas requirement is estimated at 380 MMscf/d for thermal power generation and fertiliser production. However, there must be a deliberate policy by the government of Ghana (GoG) to invest in Nigerian gas resources through partnership with key stakeholders, of which Shell SPDC is the biggest player. Others include NNPC, Chevron and Exxon Mobil.

    Furthermore, current Nigerian domestic natural gas requirements far exceed what existing infrastructure can supply — hence Ghana’s present quagmire, with 2015 projected to be very critical. Therefore, a sense of urgency is required to accelerate work on the liquid natural gas (LNG) import and re-gasification option as well as diversifying into coal and nuclear power generation while Ghana develops its own gas resources — a deliberate policy that allows for investment in Nigerian gas is critical to long-term energy security and sustainable economic development in Ghana.

    On the other hand, Nigeria — the largest economy in Africa on the back of oil exports — has per capita usage of electricity at 107 kWh, with total installed capacity of 6,579 MW (EIA, 2013). The electricity market has largely been fuelled by oil (LCO) (79%), but with the advent of more natural gas courtesy the WAGP project, natural gas has suddenly become a coveted resource in Nigeria.

    At WAGP’s conception in 1982 by ECOWAS, Nigeria flared about 5,462 MMscf/d (41 tcf) of associated gas (AG) daily, roughly 75% of the country’s total gas output. WAGP has promoted a 10% reduction in gas-flaring from 1,570 MMscf/d in 2007 to 1,406 MMscf/d in 2011 (EIA) (2014).

    In many oil fields gas is produced with crude oil, known as associated gas (AG), and the practice of gas-flaring in Nigeria dates back to the 1960’s. Shell (2014) argues that at the time there was little commercial use and markets for associated gas, hence gas was burned-off or flared. Today, demand for gas has grown while the technology to gather, liquefy and export natural gas to distant markets has become commercial. Also, the attendant health and environmental implications of continuous gas-flaring for communities in and around oilfields makes the practice unacceptable.

    Shell Nigeria (2014) has stated that the impediments to decreasing gas flaring has been the insecurity situation in the Niger Delta region and, secondly, non-availability of stable co-funding from partners that allow SPDC to install new gas-gathering facilities and repair existing plants damaged during the militant crisis of 2006 to 2009 — therefore, the continued practice of gas-flaring from existing gas fields in the Niger Delta presents huge joint venture (JV) investment opportunities for Ghana and West Africa.

    The time to invest and secure Nigerian gas is strategically now, and Ghana must re-position itself to allow corporate institutions such as GNPC/GNGC, SSNIT, and financial institutions, religious bodies, TUC and the AGI to show the way to the oil rich state and secure the energy future of Ghana and West Africa, and complement the efforts of VRA.

    State institutions must be empowered to evolve into vibrant and global entities. Nigeria flares 10% of global total gas reserves (EIA, 2014) and these represent a vital resource and a catalyst to Ghana’s economic development.

    The recent announcement by the Volta River Authority (VRA) that it is close to signing a conditional gas sales agreement with four indigenous Nigerian companies outside the N-Gas Consortium is very proactive — giving a new lease of life to the WAGP. ND Western Limited, which bought Shell’s OML 34 located in Warri, Delta State, produces 13,700 bopd of oil as well as 300 MMscf/d of gas. The others are Network Oil, Constant capital and Sahara Oil.

    The Authority (VRA) has also announced a long-term deal with Gasol LNG Import Limited for 100 MMscf/d of gas supply, which commences when the proposed LNG import and re-gasification plant to be sited in Cotonou Habour, Benin, becomes operational. VRA is taking decisive steps given Ghana’s medium- to long-term interest in Nigerian gas supplies through the WAGP infrastructure. However, all these efforts must be in tandem with WAGP Phase II infrastructure expansion.

    The WAGP project has helped to foster regional economic and political integration to support economic growth — particularly development of the West African electricity market.
    It comprises 678 kilometres of onshore and offshore pipelines constructed to transport associated natural gas from Nigeria to fuel gas thermal power plants in Ghana, Togo and Benin. WAGP has an initial installed capacity of 170 MMscf/d, but the pipeline is sized to accommodate future demand growth of up to 474 MMscf/d maximum (World Bank, 2014).

    A major flaw in the WAGP project is the choice of the Escravos-Lagos pipeline system (ELPS) as a link to the source of supply to the West African Gas Pipeline (WAGP).

    The impact of the Escravos-Lagos Pipeline System (ELPS) on WAGP gas supply

    The West African Gas Pipeline (WAGP) is supplied by N-Gas via the Escravos-Lagos pipeline system (ELPS). The high-pressure WAGP gas pipeline is 30 inches diameter onshore in Nigeria and connects at Itoikin, near Lagos, where the ELP System terminates (Fig 1.1 below).

    The ELPS pipeline then connects to the WAGP Lagos Beach Compressor Station at Badagry, from where the second section of the pipeline (20 inches diameter) runs about 15-20 km offshore in water depths ranging between 30-70 metres along the West African coast line to Cotonou, Lome, Tema and Takoradi. The layout effectively makes WAGP gas available to Lagos — a city state with an economy twice the size of Ghana’s and that contributes about 12% of Nigeria’s GDP.

    A further complication of the awful gas supply to WAGP is the agreement between Oando Gas & Power (OG&P) Limited and the United States Trade and Development Agency (USTDA), to jointly fund a feasibility study toward the development of an interstate natural gas transportation pipeline from the Escravos-Lagos Pipeline System (ELPS) to other South West states as part of the Nigerian Governments Gas Master Plan project. OG&P Limited is an indigenous natural gas distribution and captive power Solutions Company and a subsidiary of Oando plc.

    According to Business Day Energy Editor, Olusola Bello (2011), the project seeks to expand domestic gas infrastructure to reach industries through the pipeline distribution grid and Oando’s Compressed Natural Gas (CNG) plants.

    When completed, the project will further exacerbate the already abysmal gas supply situation to the WAGP if decisive steps are not taken now to secure Ghana’s long-term gas supply interests in the Nigerian Niger Delta.

    However, it must be noted that in June 2011 Ghana’s Energy Commission received a US$691,000 grant from the United States Trade and Development Authority (USTDA) under the Millennium Challenge Corporation (MCC) to conduct feasibility studies into the development of a Floating LNG storage and regasification plant in Ghana (Ghana Business News, 2013).

    The grant aims to assist the Energy Commission to determine the cost-effectiveness and technical viability of a Floating Storage and Regasification Unit (FSRU) over a land-based Regasification facility. These culminated in the Phase 1 Screening studies concluded by the US Army Corps of Engineers in March, 2014 — America is promoting its medium- to long-term interest in energy resources by giving something to both Ghana and Nigeria; and from these, Ghana must draw useful lessons.

    The three-phase programme of study includes screening, feasibility and engineering studies for the introduction of liquefied natural gas (LNG) in Ghana – and therefore Ghana must act decisively to realise its LNG supply goals.

    Thirdly, the Excravos-Lagos Pipeline System (ELPS) comprises pipelines ranging from 4-36 inches in diameter sized to a capacity of 1,100 MMscf/d. The ELPS upgrade is expected to be completed mid-2015 and aims to double existing capacity to 2,200 MMscf/d and transport more gas to meet the increasing domestic demand and supplies to WAGP gas customers.

    Nonetheless, gas supplies from the Excravos-Lagos Pipeline System (ELPS) to the West African Gas Pipeline (WAGP) face a constant threat of insecurity — the ELP system runs through communities in the Nigerian Niger Delta region where civil strife is endemic, with a recent history of pipeline sabotage attacks.

    Therefore, a dedicated pipeline system of the WAGP, bypassing the ELPS offshore as shown in Fig1.2 below, directly linked to associated and non-associated gas (NAG) fields including the SPDC Utorogu NAG plant in the western Niger Delta region, will assure supply security to Ghana — this is critical and requires a government of Ghana (GoG) policy initiative to drive the change.

    Analysis of the role of SPDC & N-Gas in gas supplies to Ghana

    The Shell Petroleum Development Company (SPDC) has pioneered gas supply in Nigeria since the 1960’s and plays a leading role in the domestic gas supply market. It operates a network of gas pipelines, eight gas plants and two oil export terminals (EIA, 2013).

    In addition to meeting the growing domestic gas demand, both SPDC and N-Gas leveraged an opportunity through WAGP to assure supply security to their domestic consumers in Lagos State by encouraging use of the Escravos-Lagos pipeline system (ELPS).

    Following a change of government in 2001, Ghana lost its focus and concentration on the WAGP project and failed to mobilise the needed human capital and institutional support to critically appraise the project designs before start of construction in 2005.

    The WAPG project created the necessary security guarantees for SPDC to modify its non-associated gas (NAG) plant at the Utorogu Fields in Niger Delta to meet the more stringent specification requirements of the WAGP and the receiving VRA thermal plants in Ghana for safe operability. The modifications entailed upgrades to process modules within the Utorogu plant to enhance liquid recovery from the gas well-stream — a quality issue that characterised WAGP gas supply until after 2011.

    SPDC and its joint venture partners in 2011 stated their intention to supply only half of the initial contracted gas volumes, an estimated 65-70 MMscf/d through the WAGP when it fully begins commercial operation (Shell Nigeria, 2011); however, as it turns out, that commitment woefully fell short of expectation, with 2013 delivering only 32 MMscf/d of gas.

    It is hoped that the statement by Nigerian Minister of Petroleum Resources Alison-Madueke (2014) — that gas supply will increase from 50 MMscf/d to 90 MMscf/d late November, 2014 and reach 120 MMscf/d in a couple of months — signals the end of erratic gas supply to Ghana through the WAGP. The contracted volume of WAGP gas to VRA remains at 133 MMscf/d. The Aboadze thermal plant currently receives 30 MMscf/d of gas from Ghana Gas (GNGC) (B&FT, 2014).

    Conclusion and policy summary

    Phase 1 of the West African Gas Pipeline (WAGP) project has been fully operational since November 2011, with an initial installed capacity of 170 MMscf/d to peak at 474 MMscf/d in Phase II. With current gas supply from Nigeria through WAGP attaining 120 MMscf/d in a couple of months, it is anticipated that plans to expand the West African Gas Pipeline (WAGP) will begin in earnest, since the WAGP’s existing capacity is almost fully committed.

    The Volta River Authority (VRA) is close to concluding a long-term LNG deal with Gasol plc for 100 MMscf/d of gas through the WAGP from Cotonou, Benin. Others are ND Western Limited, Network Oil, Constant Capital and Sahara Oil — but these efforts must be well-coordinated in line with the Phase II WAGP expansion project and development of Liquid Natural Gas (LNG) infrastructure in Ghana.

    It is hoped that conclusion of the Environmental and Social Impact Assessment (ESIA) for the Ghana 1000 Gas-to-Power Project in November 2014 will pave the way for establishing a LNG Floating Storage and Regasification Unit (FSRU) for the phased generation of 1,300 MW of electricity in the Aboadze Power enclave by One Energy Limited — a Joint Development Agreement (JDA) formed between Endeavor Energy Power Holdings Limited (Endeavor Energy), General Electric (GE), SAGE Petroleum Limited (SAGE) and Eranove.

    Other projects currently at various stages of planning and implementation include the LNG Regasification plant by Quantum Power Ghana Gas, Tema, and efforts to establish a joint venture (JV) company between Ghana Gas and African Power Generation Limited (AfGen), an affiliate of Gasol plc. The majority of these projects are expected to come on-stream mid-2016 onward, and serious consideration must be given to existing WAGP pipeline capacity as well as the development of domestic gas infrastructure in Ghana.

    Nigeria currently has 187 trillion scf of proven gas reserves and flares an average of 3,687 MMscf of associated gas (AG) daily, sufficient to meet the energy needs of Ghana and West Africa. Against the background of Ghana’s proven gas reserves of 3 trillion scf (400 MMscf/d), the country must take the initiative to invest in Nigerian gas now through joint venture (JV) companies to secure its medium- to long-term interest, particularly associated natural gas (AG).

    Addressing the bottlenecks of the WAPG pipeline layout through construction of a by-pass to the Escravos-Lagos Pipeline System (ELPS) will guarantee medium- to long-term gas supplies to Ghana with adequate pipeline security for sustainable industrial and economic development.

    Finally, while pursuing the liquid natural gas (LNG) option, Ghana must diversify into both coal and nuclear technology in the energy generation mix to guarantee sufficient cheap electric power to develop indigenous resources in bauxite, iron-ore and gold, diamonds, manganese and limestone, kaolin and industrial clay.

    The Volta Aluminium Company (VALCO) still operates under capacity due to power supply shortfalls — therefore, a holistic policy in the Power sector and synergy with the Petroleum sector that addresses both fuel and power generation needs is paramount to Ghana realising its medium- to long-term energy security needs.

    It is therefore hoped that the new Power Ministry will bring visibility and focus to long-term energy planning, and create the requisite investment climate through streamlining of electricity tariffs in a coordinated effort to make Ghana’s economy energy self-sufficient.

    Source; B&FT

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