Business News of 2014-06-23

ACEP stirs gas-flaring debate

Ghana owns the petroleum resource and must therefore be in a position to determine how much oil and gas is pumped out, John Peter Amewu of the African Centre for Energy Policy (ACEP) has said, asking government to impress upon operators of the Jubilee oil field to cut oil production by half and quit flaring the gas.

Most oil producing nations, he said, have a depletion strategy by which they, and not the oil companies, decide how much of the resource should be produced at any given time.

“The oil belongs to us and we must be prepared to say this is how our depletion strategy must be observed. Most mature regimes have a depletion strategy in place and it determines the amount of oil to be lifted. That is why in Saudi Arabia they can decide to bring in more to the market or less depending on the price of oil. So we must have control over our depletion strategy, and that can save our gas,” he said.

“That of course calls for some level of negotiation between government and the operators. They must sit down and dialogue. Considering the environmental, social and economic impact, it would be proper for us to reduce oil production and stop the gas-flaring,” he added.

But cutting production by half would have financial consequences for government and the Jubilee partners. B&FT estimates conservatively that the government’s loss of revenue if production is halved over a three-month period could be between US$70-100million.

Asked whether the losses to be incurred if oil production is reduced would not be too much to bear, Peter Amewu said the environmental, social and economic losses through gas flaring are greater.

“Their argument is that they cannot continue re-injecting the gas because it could jeopardise the reservoirs. I perfectly agree. But how did they bring the gas out? They brought the gas out as a result of the oil they were getting. So the economics of how much you lose leaving the oil underground is not material now. What is material is the effect of the flaring on the environment and the economic cost in terms of how we are wasting the gas,” he said.

“What we are going to lose is excess capacity that you have not triggered...and basically that is going to be your operational cost. Your losses in terms of the revenue are the oil in kind, which still remains underground. It simply means that you have an excess capacity because you are not producing at full level, and at any particular time that you want to trigger that production level you can do it,” he added.

As a by-product, the gas at the Jubilee oil field is dependent on the amount of oil produced: for every 1,000 barrels of oil that is produced, it would necessarily come out with one million standard cubic feet of gas.

That being the case, the energy researcher argues thus: “Currently, we are pumping about 110,000 barrels and that comes along with the equivalent volume of gas. So if we can reduce production to between 40,000-50,000 barrels of oil per day, we will be saving half the amount of gas that we are flaring or wasting. As such, within the period that the infrastructure project will be completed for the gas to be used, we will still have sufficient gas in the reservoir for power generation.”

Government, earlier this month, went back on its “zero-flaring policy”’ and gave Tullow Oil, operator of the Jubilee Field, the go-ahead to flare 500 million standard cubic feet of associated gas every month until October, when the gas processing plant is expected to be ready.

Gas-flaring, globally, has been associated with dire health and environmental consequences, including acid-rain, crop failure, water pollution and a decline in the populations of many species of animals. The chemicals and toxins that are released from the burning gas infiltrate the soil, water and plants of surrounding areas.

According to a report titled "Unhealthy Effects of Upstream Oil and Gas Flaring" by the Sierra Club, a grassroots environmental organisation, gas-flares in Alberta, Canada, for instance have been associated with increased risk of dermatological problems, spontaneous abortion and numerous kinds of cancer.

The gas that is burnt through high pipes at oil production sites disperses its pollutants over wide areas, and these pollutants can cause damage to humans at concentrations that are far below what can be detected by smell. In other words, the health risks are not detectable by sufferers until the damage is done.

Ghana’s Environmental Protection Agency, which consented to gas-flaring at Jubilee, said it did so to avoid damage to the oil reservoir and save the output that would be lost if the gas continues to be re-injected.

Source: BFT
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