Gas price: Ghana to save $1.34bn in 20 years

A successful renegotiation of Offshore Cape Three Points (OCTP) gas price is expected to save the nation about $1.34 billion within the over 20-year life span of the project.

In effect, Ghana will save at least $72 million each year.

Significance for the Ghanaian economy

This is a significant achievement as part of government’s efforts to reduce the cost of energy to Ghanaians and to create an enabling environment for business to thrive.

Lower electricity tariffs

Per the savings, lower electricity tariffs are being maintained, leading to decreased cost of doing business.

Boost for industrialisation drive

The move will also contribute positively to the industrialisation drive of Akufo-Addo’s government with attendant benefits such as economic growth, employment creation and a boost in government revenue.

Information from the sector Ministry said the government, represented by the Ministry of Energy, Ministry of Finance and Ghana National Petroleum Corporation (GNPC) on one hand, and the OCTP partners, namely Eni Ghana and Vitol Upstream) on the other hand, conducted the renegotiations to revise the gas price.

It would be recalled that the OCTP gas price was negotiated in 2015 as part of the Gas Sales Agreement signed between GNPC and the OCTP partners.

The negotiated headline gas price at the time was $9.8 per million British thermal units (MMBtu) to be escalated annually by a composite index that tracks movements in the United States consumer price index and Henry Hub gas price.

However, the renegotiation succeeded in reducing the price to $7.54 per MMBtu, slashing the price by $2.26 per MMBtu.

MoU and letter agreement

In subsequent engagements with the OCTP partners, an agreement was reached in a memorandum of understanding (MoU) dated January 15, 2019, to rearrange the funding of the Takoradi-Tema Interconnection Project (TTIP), such that it is treated as a loan borne by GNPC (on behalf of the state) instead of it being a development cost to be recovered through the gas price.

The TTIP was completed in July 2020 at a total cost of $ 126.4 million.

GNPC is to pay the loan using credit accumulations on the Sankofa gas payment since its first gas was produced.

Following further engagements and negotiations between GNPC and the partners to exclude the TTIP cost from the delivered gas price, amongst other measures, the parties agreed to reduce the gas price by $2.26/MMBtu.

The MoU has been signed to outline the broad terms and conditions for the price reduction, as well as the implementation plan.

Subsequently, the parties negotiated a letter agreement as a sequel to the MoU to implement the reduction. This letter agreement was signed by the parties in October 2021.

Gas price reduction and savings

Owing to the execution of this agreement, there is an immediate reduction of OCTP gas price.

Offshore Cape Three Points (OCTP) is an integrated project for developing fields of oil and non-associated gas.

It is the only non-associated gas development project that is entirely dedicated to the domestic market in sub-Saharan Africa.

The operator has 44.44% of the permit for OCTP, which is governed by a concession agreement.

The bloc, which has reserves of about 40 billion m3 of non-associated gas and 500 million barrels of oil, is located about 60 kilometres off the coast of western Ghana.

The Sankofa and Gye Nyame fields are developed through wells and systems on the seabed, and linked through pipelines to the floating production, storage and offloading (FPSO) unit John Agyekum Kufuor.

OCTP production began in 2018 from two of the four deep water wells connected to the FPSO John Agyekum Kufuor floating production, storage and offloading unit.

The facility has an oil processing capacity of 58,000 barrels per day and a gas processing capacity of 5.93 million standard cubic metres per day, while a 63 km natural gas pipeline connects it to the coast.

The gas fields in OCTP has provided a continuous supply to Ghana’s thermoelectric generation system since 2018 and will do so for another 15 years at least, and quite possibly 20, thanks to long-term contracts with the government.

Developing national gas resources in Ghana is a priority in improving access to energy in the country, increasing sector profits and creating a flow of extra revenue for the government.

Natural gas, available locally at affordable prices, gives people a more stable, clean and safe energy supply.

The development project for OCTP is an example of dual flag approach, as 49% of its contracts are assigned to local companies, 75% of staff are local and every year $1.3 million are spent on scholarships and training.

Because it has zero flaring and emissions, the project has a minimal environmental impact.

Another environmental benefit of non-associated gas is that it replaces petrol in existing plants and feeds new power stations.