Politics behind Ghana’s plot to become West African gas hub

Ghana’s Africa Cup of Nations campaign may have resulted in a humiliating end after losing to the fourth-smallest African nation, Comoros, yet the West African nation has unveiled plans to share in Nigeria’s lunch by becoming sub-Saharan Africa’s first LNG importer in 2022.

In a period where Nigeria is having an ambitious plan to power its economy with gas by 2030, Ghana is planning to sell liquefied natural gas (LNG) throughout West Africa, with its terminal at the port of Tema set to receive its maiden cargo in the second quarter of 2022.

Ghana, seen by many investors as the economic gateway to West Africa and one of the region’s most stable democracies, is working with partners interested in building infrastructure to sell LNG to domestic users and those within the sub-region looking to boost power.

The project, which is operated via Ghana’s Tema LNG terminal, is backed by Helios Investment Partners and Africa Infrastructure Investment Managers. It is also made up of a dedicated floating regasification vessel, a separate LNG storage vessel, and has the capacity to import 1.7 million mt/year of LNG.

For Ghana, the start of LNG imports is seen as a boost for developing its gas-fired power generation sector.

“Ghana is one of the most politically stable countries in Africa, providing a peaceful and predictable operating environment as well as serving as a key point of entry into West Africa,” Murega Mungai, trading desk manager at AZA Finance, a provider of cross-border payment solutions, said about the project.

Nana Akufo-Addo, the 77-year-old who has been Ghana’s president since January 2017 and whose term of office ends in January 2025, has had a deliberate strategy in making a case for the country to have an energy hub that will be championed by Ghanaian diaspora, in demonstration of the government’s determination to improve the economy.

The proposed energy hub would cover a proposed 20,000 acres in western Ghana and would include four 150,000 barrels per day refineries. The plan also calls for two jetties, storage facilities, and two petrochemical plants.

The price tag for the proposed hub has been set at a cool $60 billion and the plan calls for completion by 2030. Each refinery would cost $5.4 billion, Fitch Solutions has said.

Risk consultant Pangea-Risk said last month that the inclusion of LNG in the energy mix was “critical” for Ghana’s growth and development, and would boost its clean energy transition with gas displacing heavier fuels.

“By selecting gas as a transition fuel and connecting to the global LNG supply chain, Ghana has secured the first-mover advantage in the push for a greener future,” it said.

In order to have legal backings, Ghana’s parliament passed a bill establishing the Petroleum Hub Development Corp. (PHDC) in October 2020. The Ministry of Energy said it was in talks with three potential bidders on the first phase investment, which would require $12 billion.

Active participants in this new drive are Ghanaian diaspora. In September 2018, Akufo-Addo launched a year-long initiative to commemorate “the 400th anniversary of the first recorded forced arrival of enslaved African people to the US” and dubbed it the ‘Year of the Return, Ghana 2019.’

It resulted in an additional 237,000 visitors coming to Ghana in 2019 and an injection of $1.9 billion into the local economy, according to the Ghana Tourism Authority.

“Positive economic outlook driven by service sectors, telecoms, fast-moving consumer goods, and financial services tends to attract foreign investors. Its pro-business stance seeks to boost economic growth with the government focused on providing a better business environment for investors,” Mungai said.

While Nigeria, a country with about 210 million population, attracted FDI of $107.81 million in the first nine months of 2021, Ghana, a country with 32 million inhabitants secured $829.29 million in FDI inflows in the first six months of 2021.

“Competition is free everywhere in the world, so Ghana is free to add more competition to the West African market. If Nigeria put the right kind of investment in infrastructure it can outpace any competition from any West African country,” Victor Eromosele, the longest-serving former general manager finance of Nigeria LNG Limited said.

Read also: Nigeria-Ghana bilateral trade commission

Experts say Ghana’s latest plot to become West Africa’s gas hub is expected to test Nigeria’s inability to develop and monetise some of its abundant gas reserves that would otherwise remain stranded or be flared.

The Tema LNG is expected to add to Ghana’s own gas production and imports from Nigeria via the West African Gas Pipeline, a project that is capable of making gas a critical catalyst in Nigeria’s economy but is currently rotting away costing about N54.4 billion, according to last audited report of Nigerian National Petroleum Corporation (NNPC).

Had this project been allowed to come on stream, some stakeholders say it would have served as a major contributor to Nigeria’s economic development and put Nigeria at the forefront of Africa’s gas production.

“By delaying these projects Nigeria has lost a major opportunity over the years to kick-start a massive secondary industrialisation, which would have been more geographically dispersed, across the country, thereby creating much-needed jobs,” Joe Nwakwue, former chairman of Society of Petroleum Engineers (SPE), said.

According to Nwakwue, gas-based industries are very crucial to creating secondary industrialisation in any country.

“Nigeria needs to improve the general ease of doing business; it remains very difficult for investors to come here,” he said.

The value gas brings

With 206.53 trillion cubic feet (tcf) of the natural gas reserve, Nigeria sits first as the largest gas producing nation in Africa and ninth globally, and produces 8 billion cubic feet of gas (bcf) daily, according to the Department of Petroleum Resources (DPR), the chief regulator of the industry.

Of this 206.53tcf of gas, the Nigeria LNG Limited monetises well over 4bcf daily, hence the company’s significant contribution to the nation’s economy through dividend payments from foreign exchange earnings, foreign direct investments (FDIs), and immense local content and community impacts.

Since it began operations in 1999, the company has paid to the government over $114 billion in revenues, $9 billion in taxes, $18 billion in dividends to the Federal Government, and $15 billion in feed gas purchase.

The NLNG Train 7 is currently under construction and is targeted to increase the company’s gas supply capacity from the current 22mtpa to 30mtpa.

The company is also planning to increase supply to Nigeria’s domestic market to 450,000mt per annum. It was previously supplying 250,000mt/year to the domestic market and exporting the balance of its output to Western markets.

Apart from Nigeria and Ghana, many major gas-producing countries are also embarking on new LNG projects to boost their capacity and compete in the market.

For instance, Qatar’s ongoing LNG expansion project is 32mtpa and valued at $32 billion. The project aims to increase the LNG production capacity of the North gas field from 77mtpa to 100mtpa. The facility is billed to be operational by 2023.

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