Poor timing could cause gas glut

If government does not get the timing right, its pursuit of both local gas projects and imported LNG could result in a glut of the commodity by 2018, when a number of gas projects are expected to turn up.

While gas is expected from the TEN and Sankofa Fields in the next few years, General Electric and Quantum Power are pursuing LNG projects, all of which are aimed at cutting out the erratic supply of gas for power generation.

The World Bank has however been advising government that the country has space for only one LNG project in the next five years, and it cannot be both the GE and Quantum Power projects.

The World Bank, which is giving guarantees for the Sankofa gas project, has asked GE to consider buying that gas instead of bringing in LNG.

"If you do the demand and supply analysis, you cannot demonstrate there is space in the Ghana power market to absorb the GE LNG and Sankofa at the same time. It is a timing issue. The role for LNG is after 2020,” Sunil Mathrani, a Senior Energy Specialist at the World Bank Ghana Office, told the B&FT in an interview.

"The country, in a sense, needed LNG yesterday, when there was gas shortage from Nigeria; but then it was too late. We need it like now and the next two years, but you cannot do the projects quick enough. By the time you can do the projects, Sankofa gas would have come and then all of a sudden you have a glut. So it all comes down to a timing issue,” Mr. Mathrani said.

Independent Power Producers (IPPs) will not be ready to use up all that gas in view of challenges they are facing in raising financing, he said.

“The banks are saying to the IPPs, “Who are you going to sell to; ECG, a bankrupt company? Come backwhen you have an answer to the ECG problem. Which bank will insure your house against fire when it knows for sure the house will burn down the next day?” he said.

While 170 million cubic feet of gas per day are expected the Sankofa project, the Quantum Power LNG Project in Tema will have the initial ability to receive, store, re-gasify and deliver over 1.75 million tonnes of LNG per year.

The World Bank thus maintains that the focus, in the next five years, should be on local gas -- Sankofa and TEN.

The African Centre for Energy Policy (ACEP) has also said the local gas could struggle to find buyers if IPPs opt for cheaper gas from abroad in the near future.

The energy policy think-tank said it is too expensive for government to agree to buy gas at US$9.00 per million standard cubic feet from the US$7billion ENI/Vitol Sankofa project.

“With shale gas and cheap gas from Qatar and other places coming in, we could be in for trouble,” the outside-government source said. “Now that we are looking to IPPs to develop our power sector it is no longer going to be government controlled, and they are business people,” a senior official of ACEP told the B&FT in February.

"They are not necessarily interested in your gas; they are interested in bringing in cheap fuel. Once they have a guaranteed tariff, they are looking at how to reduce cost to make more profit and not how to buy gas automatically. So if they can get gas cheaper somewhere, they will opt for that.”