Govt, IPPs rejecting free Jubilee, TEN gas

Tullow Oil, operator of both the Jubilee and the Tweneboa, Enyenra Ntomme oilfields has revealed that it is not getting buyers for most of the associated gas being released from the two oilfields despite the equity partners of both, being willing to give it away virtually for free.

Tullow is being forced to either flare most of the gas being produced from the two fields or reinject it back into the fields. The former causes environmental pollution while the latter damages the walls of the reservoirs, inhibiting oil production and worse still, threatening the structural integrity of the wells themselves.

Consequently, Tullow claims it has been offering gas from the fields for free, thus enabling power generation producers located in the eastern part of the country to secure gas at the cost of only the tariffs charged for transmitting the gas through the reverse gas pipeline recently completed by government.

However, most of the gas purchases by power generators, including government itself are still secured from ENI Ghana, the operator of the Sankofa Gye Nyame field, or from Nigeria Gas which supplies it through the West African Gas Pipeline (WAGP), both at market determined prices. This means power generation in Ghana is costing more than necessary and the extra cost is being passed to households and businesses alike, embedded in the tariffs they are charged for electricity.

The cost of gas imported through the WAGP as at 2018 was US$7.3/mmbtu, down from US$8.8/mmbtu in 2017. Similarly, gas secured from the Sankofa gas field offshore of Western Ghana is sold at US$7.8/mmbtu, down 20 percent from the US$9.80/mmbtu originally negotiated between government and the field operators.

This reduction has been made possible by a clause in the agreement that calls for gas price reductions based on Ghana’s contributions (through Ghana National Petroleum Corporation as an equity partner) and the eventual project development cost for laying the gas pipelines from the field, which turned out to be lower than expected.

Nevertheless, these prices are both significantly higher than the estimated delivery cost of US$6.4/mmbtu from the Jubilee and TEN fields, because of a clause in the purchase agreement from those fields under which the first 200bcf is free.

But according to Tullow, it is not even asking for this since it needs to get rid of the gas, and so the only cost for purchasers of the gas is the tariff charged for transporting the gas to where it is needed – in the case of the power generation facilities in the eastern part of the country, this being the tariff charged for using government’s recently completed reverse gas pipeline.

However, the bulk of gas being used to generate power in Ghana is still purchased at commercial rates from Sankofa and Nigeria.

Sankofa gas is purchased based on a take or pay agreement covering 90 percent of the gas produced from that field. Consequently, of the 25,563 million standard cubic feet produced this year up to September 30, 20,407 mmscf was sold to power generation facilities.

Conversely though, only 14,052 mmscf out of the 37,939 mmscf produced from the Jubilee field was used for power generation; 17,693 mmscf was reinjected into the wells, 3582.7 mmscf was flared while 2,611.27 mmscf was used to power the FPSO.

Even worse, out of the total of 35,148.54 mmscf produced from the TEN field during the first none months of this year, 30,700.96 mmscf was reinjected, 1,018.78 mmscf was flared and 2,749.59 mmscf was used to power the FPSO, and only an inconsequential 693.92 mmscf was sold to power producers.

Meanwhile, Ghana is now buying close to the original contract volumes of gas from N-Gas through the WAGP at a cost close to that of purchases from Sankofa.

Oil industry analysts assert that although the take or pay element in this contract is uncertain, Ghana has a legal right to dispute it since for several years after the contract commenced, the country received far less than the contract stipulated, this being a major cause of the power shortages incurred between 2012 and 2016.

This they point out gives Ghana grounds to dispute any take or pay element since the country can argue that the volume shortfalls forced it to enter other supply contracts, in order to get the lights back on.

Ultimately, every Ghanaian consumer of electricity, household and business, poor and affluent is paying the price for this unsavoury situation in the form of higher electricity tariffs that would be required if all of the much cheaper gas from Jubilee and TEN was being used rather than the much more expensive gas from Nigeria and Sankofa.