Booking.com

ACEP opposes approval of Ghana Gas Company as national gas aggregator

Ghana Ghana Business News

Energy think tank, African Center for Energy Policy (ACEP), has kicked against the approval of the Ghana National Gas Company (GNGC) as the national gas aggregator by the Office of the President .

According to the think tank, GNGC does not have the capacity to assume the liabilities of the commitments that come with the role of an aggregator in the Ghanaian oil and gas sector.

Instead, ACEP recommends that government makes GNGC a subsidiary of GNPC, as a response to the implementation of the Gas Master Plan, explaining that, the optimal option for achieving results in the oil and gas sector for Ghana, is to pursue the top-down integration model with GNPC at the top as an anchor.

It also allows GNPC to support subsidiaries along the value chain with their balance sheet.

ADVERTISEMENT

Natural Gas Aggregation allows a group of consumers to combine their natural gas usage to form a buying group. The buying group, with its greater bargaining power, may be able to secure lower or more stable natural gas prices in today’s competitive market.

In a statement, ACEP revealed that the Presidency approved the proposal based on a document submitted by GNGC calling for an adjustment of the institutional framework in the oil and gas sector.

According to the think tank, the May 11, 2020 letter also gave further instructions for the swift implementation of the proposal by the Minister of Energy.

ACEP also states that the original proposal is contained in another letter dated May 5, 2020, to the Energy Minister and copied to the Finance Minister, Executive Secretary to the President, Board Chair of GNGC, CEO of Ghana National Petroleum Corporation (GNPC), Director General of State Interest and Governance Authority (SIGA), Deputy Ministers and Chief Director of the Energy Ministry.

However, ACEP states that none of the key issues stated in the proposal indicates that GNGC can take up the role as an aggregator.

“Throughout the proposal, GNGC has ignored their lack of capacity to assume and manage the obligations that come with being a gas aggregator,” it said

It further noted that: “Under the current arrangement, GNPC occupies the strategic responsibility of gas aggregator with a function to pool gas resources from all upstream sources and sell to bulk consumers. GNGC is primarily responsible for processing of gas and the sale of natural gas liquids.”

However, “There has been the policy flexibility for the GNGC to sell gas to non-power and industrial consumers. Under the proposed arrangement, GNPC will cease to perform the responsibility of gas aggregator to allow GNGC to integrate the mid-stream gas operations (Aggregation, Processing and Transmission).”

Background

In 2015, government approved the takeover of GNGC by GNPC as a subsidiary for the latter. A key consideration for this consolidation was to make it possible to have a more integrated management and financing of projects in the oil and gas sector.

According to ACEP, this was particularly necessary to provide the needed financial securities for the development of the Offshore Cape Three Points (OCTP) project.

ACEP’s position on this arrangement was that GNPC had the capacity to manage gas projects and had the financial muscle through its share of petroleum revenues to undertake new gas projects, for the purpose of expanding gas processing and transmission facilities.

ACEP maintains the position that if this had been followed, it could have given GNPC a sharper focus on the oil and gas industry, adding, it was evident at the time that GNGC could not raise financing to undertake the critical expansion of their processing facility, and also provide financial guarantee for the upstream development as the aggregator.

According to ACEP, this position is still true today.

ACEP further noted that “Being a gas aggregator comes at a significant risk imposed by the industry dynamics such as being witnessed with Covid-19 and the usual volatilities.

Furthermore, “Transferring the role of an aggregator to GNGC also introduces significant risks for upstream investment and the power sector. The weak balance sheet of GNGC makes it unattractive to the investor community which has implication for exploration and production. The coincidence of the policy change with the challenging global oil industry on the back of COVID19 further exposes the country to high investment risks.”

Click below for the full analysis of the proposal:

Gas Master Plan

The Gas Master Plan, GMP, outlines the country’s gas utilisation priorities that encompass power generation, cement production, industrial co-generation, transportation and petrochemical synthesis.

It is also to develop gas infrastructure, prioritise the use of the country’s gas resource, ensure the security of energy supply as well as provide modalities for the efficient management and safe delivery of liquefied petroleum gas (LPG) to homes and industries.

Processes for the development of the GMP started in 2014, while the final document was submitted to the Cabinet on June 9, 2016.

Citi news


Leave a Reply