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What Can Previous Booms Tell Us About the New Oil Boom?

  • SOURCE: | qwesa2big
  • There is anything but clarity about several key aspects of the industry. The policy process is happening in the context of a transparency vacuum that frightens social activists and public interest analysts. Revenue analysis for policy planning purposes remain superficial because there is still no official view on how much it would cost to produce a barrel of oil from the field.

    Of the other two key parameters that would determine the likely revenue inflows, only the estimated average price of a barrel of oil in the coming fiscal year (presumably discounted to North Sea Brent since the new oil is “light sweet” crude) has received official treatment. Anticipated average volume of production is only murkily appreciated. The reason being that in the name of “fast-tracking”, the original plan that called for the development of more than two dozen production wells was pared down to one in which less than half of this expected number was drilled. Pipelines to cart away gas associated with the oil to power onshore power-plants and feed fertiliser factories, amongst other hopes, won’t be on stream for at least 18 months.

    In the specific case of the gas infrastructure, even though the political elite would be hard put upon to concede, the truth is that the financing was mired in confusion, with rival companies laying claim to the technical contract, principally because government argued that all the gas ought to be provided to the state for free. They should have, as in the case of the telecom liberalisation of yesteryear, married national interest to private incentive. Today it is still not clear whether the associated gas shall be flared, used in place of crude to power the converted vessel that is serving as the production platform, or injected into the field. While the oil companies have at several points indicated that injection was the most viable compromise (and had even drilled wells for this purpose), it now appears that this approach could endanger the integrity of the field, and that one of the gas-injection wells has actually not been completed.

    The companies say there shall be “operational flaring” of the gas (a practice abhorred by environmentalists), and that this is permitted by incoming regulations. The government says there shall be no flaring. As usual, you can’t make head or tail of it.

    The point is hardly whether oil shall prove to be a “curse” or a “blessing” for Ghana. That artificial dichotomy is simplistic to the point of uselessness. The oil find, impressive though it is, does not change the fact that Ghana’s proven reserves and production volumes are puny compared to what pertains in places like Angola and Nigeria, where the force of oil has been substantial enough to knock out of place several important systems (or, on a per capita basis, places like Gabon and Equatorial Guinea). The features of Ghana’s nascent industry places the country more fittingly in a category that includes such countries as Cameroon, DRC, Cote D’Ivoire and Chad. The real choice is actually one of oil becoming either a drop of “catalyst” or a bag of “stuffing”. A catalyst would generate multiplier effects across the economy. Stuffing, on the other hand, will create the bloated impression of plenty, leading to reckless spending decisions and creeping fiscal irresponsibility.

    Wisely, however, the government has begun to dampen some of the excesses of enthusiasm that had started building up around the oil. It has revised anticipated oil revenues for 2011 from $1 billion to a conservative $400 million. This is very prudent since revenue forecasting for policy planning purposes, in direct contrast to revenue forecasting for commercial public relations purposes, should be conservative.

    As you watched Ghana’s political elite, decked in blue jumpsuits branded by one of the 5 private companies in the consortium that developed the Jubilee field, sauntering through the steel maze of the production vessel’s deck on national TV, the image must have seemed very apt. You must have thought: "they are still finding their way through the labyrinth."

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