A case for LNG in Ghana- ACEP's position apt

Last weekend, the Africa Centre for Energy Policy (ACEP)  published an advisory paper for the government.  The paper is aptly named “Liquefied Natural Gas (LNG) supply to Ghana: The politics and the reality”. 

This paper is doing a commendable job in reviewing the background, setting the framework for analysis of demand and supply for natural gas, today and in the future, providing an overview of the alternative solutions, explaining the cost verses benefit and provides the government with clear recommendation.

By adopting the paper’s recommendation and following through with its implementation, the government would be delivering widely recorded, tremendous benefits to Ghana, its people and economy. 

These include the quick elimination of any risk of ‘Dumsor’ in foreseeable future, improving Ghana’s precarious debt affordability and facilitating a vigorous return to gross domestic Product (GDP) growth.  This is wonderfully good news.

However, lurking underneath the paper’s technical and economic jargon, hidden behind the various acronyms and tariff calculations, is a very disconcerting cautionary tale. 

A tale of how a pernicious combination of vested interests, un-empowered and, at times, inept public servants, gullible politicians and a general predilection to procrastinate can bring an economy to its knees, chock up GDP growth, cost many billions of dollars that Ghana can ill afford to waste, and cause direct and in some cases, irreparable harm to the people.

Ghana, recognising the importance of natural gas to its growing electricity sector, contracted for natural gas with Nigeria back in 2008.  This gas was to be supplied through the West Africa Gas Pipeline.  Sadly, that agreement was never fully respected, yet dogged continued reliance on it, despite consistent contrary evidence, carries the blame for much of the power deficit in the last six years. 

This was coupled with the realisation at the same time that domestic gas is less bountiful, slower in coming on stream and more expensive than expected, and in any event, insufficient to supply the country’s growing needs for energy.

The gap had to be plugged and light crude oil (LCO) - an expensive, environmentally unfriendly fuel, typically used for emergency plants and in temporary situations - was imported from Nigeria to keep the lights on.  Or, at least, for some of the time.  

The Volta River Authority (VRA) had to switch some of its thermal plants to run on the significantly more expensive LCO, with no commensurate tariff increase. 

This, declining rainfall, and increase in international oil prices in the period from 2012 to 2015 (LCO price is directly tied to oil prices) eroded VRA’s credit worthiness, with hundreds of millions of dollars spent annually on importation of LCO. 

The lack of cash led to delayed maintenance schedules, which predictably resulted in technical faults, leading to load shedding - our infamous Dumsor - which lead to throttled down GDP growth, harmed Ghana’s international credit ratings and cost of debt.  A vicious circle.  A perfect storm.  Or is it?

What’s troubling in this “Perfect Storm” account is that the storm was perfectly avoidable.  Since 2012, the Energy Commission in its annual Energy Outlook stated that LNG was critical for reliability and stability of electrical power and urged the government to “…proactively create incentives to encourage investment in LNG regasification facility…”. 

The Energy Commission, however, is a technical body employing the best brains in the business with the best access to the data and ability to see the trends.  Its’ members are not politicians, i.e. not decision makers, hence, tragically, their recommendations can be safely ignored if inconvenient.  And ignored they were.  Mostly.

Even the venerable World Bank, protective of its loan to Sankofa, predicted - wrongly - that by 2017 (now), Sankofa would be producing so much natural gas, that there will not be any need for LNG. 

To lend credibility to this patently false scenario, they had to assume that Nigeria, who has consistently failed to supply gas to its own electricity network and populace (with over 90 million with no access to electricity), will suddenly, in a bout of self-sacrificing generosity, provide gas to us, and willingly cannibalise on its way-more-profitable LCO sales to Ghana.  Reality, facts, reason and the money path - all become superfluous  when one has a position to protect.

What next

The government is now seriously reviewing its options to end this vicious circle.  According to ACEP, some of these proposals - and not necessarily the cheapest and more realistic ones - are constraining Ghana’s optionality to freely negotiate LNG supply, as they bundle the required infrastructure with LNG supply. 

This is akin to the computer printer industry, where the sellers are discounting the printers but charge the customer a hefty price on their ink cartridges.  It is only that in this case, the “printer” - i.e. the regasification infrastructure - offered by some is not being discounted and it is far from certain that that “printer” that is be built in compliance with international safety rules, on time and on budget as no studies were done. 

  Other proponents are those who could be blamed for bringing us to this addiction to LCO in the first place, and should be viewed with extra vigilance.  

Way forward

We are now at a critical juncture.  A wrong-footed decision or further delays will enrich narrow interests at the people’s expense.  The role of government in a properly run representative democracy is to protect the position of the people. 

This time it is crucially important that the government will heed the clarion call of its technocrats, as well as unbiased domestic and international technical experts.  

The public should pay attention.  It is our country, our money, our employment, and our children’s future that is at stake. 

We either have the opportunity to directly save over $5 billion during the next 10 years, or continue to waste our dwindling resources. 

Let us not allow fantasies, wishful thinking and bedtime stories to be the bedrock upon which our economy is being rebuilt but take a cold look at agenda and factual records and act decisively and swiftly to jointly build a better Ghana.