Ghana must procure an LNG facility now

LNGGhana in time past has had dramatic power cuts which affected industries and households alike, throughout the country.

The Minsiter of Energy, Boagye Agyarko himself has repeatedly pointed out that our ongoing ‘dumsor’ challenge is directly linked to the expensive imported fuel, LCO, on which our thermal power generators have been totally reliant.

The unreliable power supply has led to calls by the citizenry, experts and stakeholders for the country to secure alternative sources of fuel for our power, one that is reliable and sustainable.

A wide consensus, internationally and domestically exists that natural gas and where necessary Liquefied Natural Gas (LNG) for transporting that natural gas, is the fuel of choice to fire a country’s power plants , affordably and reliably and responsibly in terms of clean energy.

The increasing availability and decreasing price of LNG allows countries to diversify energy sources, meet demand spikes, and transition from outdated fuel sources to modern renewables.

The New Patriotic Party (NPP) government has placed a premium on the need for the country to be energy efficient.

A recent report by one of Ghana’s most respected think tanks, ACEP in its recent advisory paper for the government titled: “Liquefied Natural Gas (LNG) Supply to Ghana: The Politics and the Reality,” highlighted the urgent need for the government to facilitate the procurement of LNG facility citing scalability, cost, timing and sitting of the projects as the reasons for an LNG facility.

The ACEP paper highlighted the need for an LNG facility for Ghana. It also analysed the cost of Ghana’s indecision on LNG supply and the unending politics which risk the sustainability of the power sector.

The paper carefully analyses the three different proposals that seemed to be under consideration. They are Quantum Power (QPR), West African Gas Limited (WAGL) – a subsidiary of Nigeria’s Sahara energy, and Blystad Energy Management (BEM).

A fourth proposal seems to have been dropped as it was proposed for the Western Region, where the availability of domestic gas makes it pointless.

Although the three proposals are all for the Tema region, where due to lack of domestic gas the energy shortage is most acute, and now all offer a 10 -year term, they have a number of differences.

In terms of location, QPR’s facility sitting is five kilometres offshore, while both WAGL and BEM propose for their vessels to sit in the port.
ACEP notes that it is questionable as to whether it is possible to situate such a facility in the Tema Port in particular.

On one hand, a number of technical studies have shown that gas cannot be safely evacuated from the port because it is already too heavily built-up and major safety hazards exist, also in the proximity of the oil jetty in Tema Port. Adequate mitigation resources for a possible in-port conflagration are not up to standard in Tema.

It appears that basic international permitting standards would simply not countenance an additional high pressure gas evacuation pipeline through Tema port, not to mention along the populated route to the Tema power enclave. This would appear to be confirmed by the denial recently of GE Early Power’s request to construct a similar LPG pipeline from the port.

On the other hand, very costly dredging and breakwater expansion work will be required, which will jeopardise the operations of the Port for two to three years of construction and permanently thereafter reduce port revenues as every two weeks a giant LNG carrier will necessitate restricted port movement for a few days while it visits to offload its LNG cargo .Why, it is asked, would the government opt for such a disruptive, costly and unsafe infrastructure solution, when a fully acceptable alternative exists just outside the Port ?

The second important difference between the projects relates to how they will be priced.
Each of the proposals requires a per unit fee to recover the investment cost of the infrastructure ($ 1.3 for QPR, $ 1.5 for WAGL and $ 1.38 for BEM), however, they differ markedly in how they handle the cost of the imported LNG.

BEM and WAGL require that they supply the LNG as well (bundled deal), with prices linked via formula to the price of oil.
At current levels this translates to $ 8.1 per unit for WAGL and $ 6.1 per unit for BEM but this could climb dramatically if the oil price goes up to the levels from just a few years ago. In contrast, QPR does not offer LNG supply.

By providing the tolling infrastructure, QPR affords Ghana the exclusive right to itself directly procures LNG at the best price, including on Government to Government basis.
ACEP notes that Ghana may in fact be able to secure much more advantageous prices than BEM and WAGL’s if it negotiates directly – recent prices identified by the government from a supplier were as low as $ 5.85 per unit.

Furthermore, the indexation of gas price to Brent , as BEM and WAGL are proposing, apparently does not reflect the global trend in the LNG market and it is “not justifiable” for the government to approve a locked-in Brent based LNG price for 10 years as this will deprive Ghana of the flexibility to take advantage of the falling global prices.

In aggregate, for the 10- year contract period, ACEP calculates that with the bundled WAGL and BEM approach, the Government would have to pay as much as $ 8.8 billion and $ 6.8 billion while the fixed obligations to QPR would be only $ 1.2 billion.
Despite these eye-watering numbers for all three projects, the figures are only a trifle in comparison to the cost of meeting those energy needs with LCO instead over the next decade, as the Energy Commission has remarked on numerous occasions.

As to timing, BEM has indicated it is able to start deliveries in a year’s time (Q3 2018), while WAGL targets Q1 2019.

However, ACEP reckons that the timing of these in-port solutions looks conservative in light of the extensive dredging and construction work required and virtual total lack of detailed studies confirming design and work required.
QPR, by comparison, have achieved all licenses and permits, completed all necessary studies and are ready to start construction and deliver gas by 2018.

Apart from ACEP advisory paper to the government, a UK based energy consultancy, Tethra also highlighted the unfeasibility of siting the Floating Storage Regasification Unit (FSRU) reside inside Tema Port.

According to international consultants, “this is not feasible from a safety and operability perspective. The pursuit of such a concept, for which no detailed design or permitting work has been submitted, could result in years of delay and Ghana incurring needless infrastructure and LCO costs.”

Tethra also quoted ACEP’s LNG advisory paper to government recommending that the Quantum Power Project provides greatest value on the criteria of least cost, scalability, technical feasibility and freedom for Ghana to directly procure LNG.

“The unbundled, infrastructure-only project is “shovel-ready” with a 12-month construction time, independently audited and will not cause port disruption costs to Ghana as their FSRU would be situated five kilometre off the coast. In reaching its conclusion, ACEP studied a Ministry of Energy officially-signed report submitted on August 1, 2017,” according to Tethra.

Meanwhilo, neighbouring Benin, has itself just issued a Request for Proposals for a LNG Terminal at Cotonou Port.

Is it too much to hope that after decades of dependence on unreliable Nigerian gas and then expensive Nigerian LCO, we are not about to become dependent on Ivoirian or Benin gas imports?

What happened to Ghana aspirations to become an Energy Hub in West Africa?
With the facts laid bare, the ball is now in the court of the government to take the decision necessary to move the process of building an LNG infrastructure forward, if it is at all serious about a sustainable electricity supply that would be necessary to underpin its One District, One Factory election promise

Minister Boakye Agyarko on his return from Equatorial Guinea last week reassured Ghanaians that the government will have regas infrastructure in place by mid -2018.
ACEP confirm that his Ministry’s official LNG Assessment Committee endorsed the QPR infrastructure project as the best value offering for Ghana and the only project that can enable the receipt of LNG by 2018 latest.

By David Adadevoh

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