No doubt the vetting was the best I have ever seen especially given the composure, preparedness and depth of answers given by the nominee to many questions posed to him by the very astute Minority Chief Whip and Minority Leader. It was rather disappointing that the Chairman of the vetting committee had exercised his autocratic powers yet in preventing a member of the vetting committee, AlhassanSuhuyini from asking a question which the nominee minister would have confidently dealt with. Below is a rather detailed and rare opportunity of a policy clash between the Minority Chief Whip and the nominee minister for energy. The author is IMANI’s honourable Vice-President, Bright Simons
Enjoy.
IMANI ALERT: Clash over Gas Policy: The Highest Point of Vetting of Ghana’s Nominee Energy Minister
I have this nagging feeling that because of the constant focus on trivia, many observers of the ongoing vetting proceedings miss moments of importance when they occur.
One such fine moment was when the MP for Asawase engaged the President’s nominee for the post of Minister of Energy over Ghana’s FRSU policy. Curiously, minutes before the MP began to engage the nominee on the subject I had just taken to Facebook to express my own reservations about the latter’s remarks.
As far as I’m concerned, such encounters between the official opposition and the government of the day (incoming or established) marks the high point of our democratic culture. Both gentlemen in facing off against each other did their duty, with exemplary passion and vigour,
If you are one of those who didn’t really catch the essence of the exchange, let me try and sketch a brief outline of the essentials.
1. You probably know already that generating power using the Akosombo dam costs this country far less than doing so using the various thermal plants (think of them as huge generators).
2. Note that this is not because there is some blanket fact of “hydro is cheaper than thermal” but rather that there are several specific factors that make such a cost differential *usually* so. For instance, Akosombo costs us only about 60% of what Kpong costs us to produce the same amount of hydro-power *most of the time*. But Kpong is still fairly cheap as it costs us about 75% on average to produce the same amount of power as the average thermal plant.
3. But things are not so simple. Though it is unlikely that any thermal plant can match Akosombo’s cost performance, there is still considerable variation among them, largely dependent on what fuel they use and how they are configured.
4. For example, Karpowership relies on really dirty, heavy, fuel which is likely to affect the health of residents in its catchment area down the line, but the stuff is cheap. Karpower’s fuel costs are less than 45% that of major rivals, Tapco, Tico and Sunon Asogli. Tapco and Tico use crude oil (the stuff we have been producing from Jubilee) and Sunon mostly uses gas.
5. Now, here is where it gets interesting. Due to cutting-edge engineering configuration, Tapco and Tico spend nearly the same amount as Sunon Asogli, even though the latter uses gas, whilst CENIT, which like Tapco and Tico uses crude oil, spends nearly 50% more than Tico.
6. Nonetheless, given similar levels of engineering sophistication (no point to get into the “combined cycle” and whatnots here), gas prices have *tended* to be cheaper than crude oil prices. Even with falling crude oil prices, gas can still manage an edge *depending on a number of factors*.
7. The MP for Tamale South asked a related question connected to this see-saw price movements between oil and gas. In simple terms, he wanted the nominee to admit that the notion that gas is *always cheaper* does not hold as a foundation for policy, because it depends on specific contracting methods (for example: did Ghana tie its gas contracts to spot crude prices in anyway?)
8. But assuming wise contracting, sound engineering policies, and sensible local spot market arrangements for electrical power, it always makes sense to favour gas for power, especially since it is also cleaner (better for health and the environment – a fact that can still hold even in a comparison with hydro, especially when flora-fauna impacts are factored into the evaluation).
9. Ghana has thus had a kind of general, sometimes incoherent, policy to favour the use of gas as a fuel..
10. Till date, we have relied on pipelines carrying gas from our own fields offshore, and from Nigeria, to feed the 3 or so thermal plants that rely mostly on gas.
11. The Nigerian suppliers are unreliable and frequently fail to honour their contractual obligations in respect of the volumes required.
12. The gas we have is “associated gas”; it therefore depends on the production level of crude oil. Due to FPSO engineering problems and other factors, this gas supply can also be erratic, though never as bad as the Nigerian supply.
13. So the question has always been: why not acquire the capability to import gas the same way that we can import crude oil to feed the thermal plants. Then and only then would it be correct to say that power supply in Ghana is exclusively a question of financing, since otherwise supply interruptions of gas supply would continue to make it, at least partly, a question of feedstock stability as well.
14. But how does one import gas from overseas? Would it require a pipeline to the Middle East, or Equatorial Guinea? No. The gas can be turned into liquid, and transported here like crude oil (in a form known in the trade as LNG). When it gets here, it can be gassified again and then fed through pipelines to serve the thermal plants (the platform that can receive the LNG, store, and turn it into gas is what is known as the ‘FSRU’). Of course, this is cheaper than requiring each plant to build its own LNG handling facility and gassifier.
15. It doesn’t take genius to realise that the cost of doing this may be higher than buying gas from Ghana or Nigeria, and with more gas coming on stream and the prospect, however dim, of stability in Nigeria, there is a real risk of a gas glut.
16. The question has thus arisen as to whether the country should have only one FSRU. The back and forth between the MP for Asawase and the nominee was over this point. The nominee claims to have sighted a document that affirms his argument that the country must have only one FSRU and yet the past administration is pursuing three concurrently. The MP sought through his questioning to challenge this view.
17. The fact of the matter is that there are three consortia seeking to build FSRUs in Ghana. There is a question of where to site these massive platforms, how much they will charge for storing the LNG and gassifying same, and whether the variation in terms are problematic.
18. As far as I can see the three platforms have different capacities and overall project designs. Generally, (let me emphasise that these calculations are all crude) 1 million cubic feet of gas should produce about 4 MW of power. Ghana’s medium term plan is to produce 5000 MW, which is not really unreasonable.
19. To do so at a reasonable heat rate and reserve margin, we are thus talking about 1000 million cubic feet of gas (if pricing dynamics or policy fiat shift all our thermal facilities to gas) since it is intended for the bulk of this new load to be supported by thermal. With the country struggling to produce 70 million cubic feet, and the Nigerians struggling to send in 50 million cubic feet on a good day, there COULD be as much as 700 million cubic feet of latent demand even assuming that our new gas fields prove as fertile as the optimistic projections portend.
20. The funny thing is that all three FSRUs are planning a combined initial capacity of less than 750 million cubic feet.
21. Assuming a very sound 60% utilisation rate, the effective combined capacity of the three facilities would only be 500 million cubic feet, the maximal bound of the GNPC’s current medium-term projected need (that is ignoring the 5000 MW target and focusing solely on switching existing thermal plants to gas and assuming a resumption of consumption growth, which has fallen by 20% off its recent peak).
22. Simply put, there is no reason why all three FSRUs cannot compete in a sophisticated LNG market. When regional possibilities are considered, the issue becomes a no-brainer. In fact, a full appreciation of the regional opportunity must take into account the prospect of gas exports beyond the immediate sub-region as well, something for which LNG platforms (enhanced with liquefaction modules) would also be required.
23. I acknowledge the concerns around the government being expected to put up security for LNG and thus guaranteeing certain minimum output thresholds, but this is a matter of negotiation, surely? It is strictly a question of minimum utlisation rate, and government guaranteeing uptake only to a rational threshold. Nothing more.
24. It is vital in strategic analysis not to downplay the importance of redundancy and market competition when planning for the security of any commodity, be it light-crop cocoa beans or, indeed, natural gas. In respect of strategic analysis, there is also the issue of the geopolitics of all this. Which geoeconomic interests is the nominee most eager to confront? The Israeli billionaires with their deep tentacles into the GNPC bureaucracy? The Nigerians, whose gas and crude we so desperately need? Or the French and Americans arrayed like a rock behind the mighty GE, and its Ghanaian scheming allies? Alas, these are the forces backing the three consortia.
25. That is why I am baffled by the nominee for the energy portfolio’s insistence that Ghana should have only one FRSU as a matter of policy fiat. And why I believe the clash with the MP for Asawase (and Minority Chief Whip) was a seminal moment for policy debate in this country.
Long may rational debate prevail.
Bright Simons is an honourary Vice President of IMANI.