Ghana’s Oil Export Faces Ban

Filed under: Business |
Jubilee tullow photo
Tullow’s Jubilee field operation of the Ghana coast

Ghana could soon freeze future exports of its crude oil entitlements, which are held by the Ghana National Petroleum Corporation (GNPC), in order to meet local consumption needs.

There is also the intention to require oil companies operating in the country to sell a portion of their share of crude to the Ghana government to meet domestic needs, according to fresh provisions introduced into the draft Petroleum (Exploration and Production) law, currently being worked on by the Ministry of Energy.

The immediate beneficiary of the provision could be the Tema Oil Refinery (TOR) which currently imports crude from Nigeria despite Ghana’s cumulative production of over 30 million barrels since production officially began in December 2010 at the offshore Jubilee Field.

When contacted, Mrs Aba Lokko, Corporate and Public Affairs Manager at TOR, said she was not privy to the version of the draft law under discussion and would like to study it before speaking on the possible implications of the new provisions for the nation’s only refinery.

But sources close to the company say the implications could be very positive ranging from cutting back on freight charges to reducing cases of demurrage (detention of a ship, freight car, or other cargo conveyance during loading or offloading beyond the scheduled time of departure) which usually arises from TOR’s inability to establish letters of credit in good time. According to our source, demurrage could be as much as $40,000 per day.

Our sources further say, a journey to Nigeria for immediate supply could also take more than four days with a round trip requiring 78 hours and loading requiring another day. In comparison, a round trip from Tema to the Jubilee field could be 24 hours with an estimated one day required for loading.

At full capacity, TOR could refine 45,000 barrels of crude per day. Under current arrangements, a consignment of up to 600,000 barrels is delivered to TOR from Nigeria and lasts over a period of 15 to 20 days depending on operation capacity.

But this is also because oil marketing companies are allowed under the current deregulation regime to import refined products into the country to augment supply from TOR.

As of Wednesday, the GNPC and all the International Oil Companies (IOCs) operating the Jubilee Field had together lifted 34 light sweet crude consignments to the international market with Ghana’s latest (6th) lifting of 996,484 barrels of crude occurring on 3rd April, 2012. Tullow Oil Plc has indicated recently that current production is at 70,000 barrels of crude per day (bpd) but expected to hit the 90,000 barrels mark by the end of 2012 and 120,000 bpd for full capacity in 2013.

The propriety of GNPC’s sale of the Ghana share of the crude on the international market has been under intense debate for some time but officials have cited the need to expose Ghana’s brand of crude to the global market as a major reason for the practice.

But when the matter came up for discussion at a stakeholder forum held in Accra in April, Petroleum economist Mohammed Amin Adam said TOR, though technically can refine Ghana’s crude, was so inefficient that the yield per consignment will be too low and the refinery margin too high to return the desired benefit to Ghanaians.

Except for purposes of retaining employment, close down TOR, Mr Adam argued, explaining that the 10 percent refinery margin TOR offers to the Ghanaian public is too high and non-competitive compared to any international refinery. The refinery margin is the difference between the price at which TOR buys crude and the price at which it sells the products such as petrol (or gasoline), diesel, etc.

Mr Kyeretwie Opoku, a member of GNPC’s Board, reiterated that GNPC’s instructions are that they should get the best price possible and that is what the Corporation continues to do. However, if TOR has interest in the crude it has to make an offer.

Now, the draft law, titled Petroleum (Exploration and Production) Bill, 2011 appears to pull the breaks on the status quo as it provides in Section 64(1) that: A contractor shall be required to supply to the Republic a percentage of the contractor’s entitled petroleum at weighted average market prices as prescribed to meet domestic supply demand requirements as determined by the Minister [of Energy].

It expatiates in 64(2) that Domestic supply requirements shall be determined as the difference between the total petroleum entitlements of the Republic and the Corporation and the total volume of petroleum and petroleum products required to meet the demand in Ghana.

Mr Bishop Akolgo, Executive Director of the Integrated Social Development Centre (ISODEC), who has together with other experts subjected the draft law to critique, believes that Section 64 of the Bill is crucial for the laying of the foundation for the operationalisation of the local content and participation policy framework by subsidiary legislation.

However, the current draft law is less user-friendly than its preceding 2010 version as well as the Provisional National Defence Council (PNDC) Law 84, Mr Akolgo observed last Monday in Accra where he addressed a stakeholders attending a national technical meeting on the Petroleum (Exploration and Production) Bill, 2011 and the Petroleum Upstream (Local Content and Local Participation in Petroleum Activities) Regulations, 2011.

While PNDCL 84 and the 2010 Bill are written in a more simple and concise manner and the parts arranged in such a way as to be coherent to the lay person, the current Bill has rearranged most of the substantive sections containing the same ideas in such a way as to confuse rather than assist the lay person, he stated.

Nonetheless, he gives thumbs up to the drafters for reducing the validity period of a petroleum agreement to 24 years in Section 14 as opposed to the validity period of 30 years contained in Section 12 of PNDCL 84.

It is unclear whether the new provisions will affect the jubilee partners and other existing licensees but there is certainty new entrants would have to adhere to the new legal requirements when they are finalised and subsequently passed into law.

When it becomes law, the Petroleum (Exploration and Production) Act, will replace the PNDCL 84, which is the current law under which petroleum exploration and production activities are undertaken and which is the law under which the Jubilee partners, led by Tullow Oil, were licensed.

The new draft is also expected to replace the 2010 version which has not been worked on by Parliament since 13th November, 2010 when the state-owned Daily Graphic reported the Majority Leader, Mr. Cletus Avoka, as hinting that the Bill, which had been referred to the Joint Committee of Finance and Mines and Energy Committee of the House, was to be withdrawn and repackaged.

Subsequently in February 2012, Mr Inusah Fuseini, Deputy Minister of Energy, indicated that government was unprepared to pass the 2010 Bill in its form and would introduce a new bill, replacing the 2010 version before Parliament in due course.

At last Monday’s meeting, Mr J.B. Okai, director of Policy Planning, Monitoring and Evaluation at the Ministry of Energy, vehemently protested the discussion of the 2011 version of the Bill, claiming the drafting of the Bills was still in progress and a government team had gone to Norway to have consultations on it.