Considering the fact that the Atuabo gas plant will provide cheap natural gas for energy generation, as well as provide numerous other opportunities that usually come with such industrial facilities, it was rightly labeled as an economic game changer. Constructed together with onshore delivery pipelines and other infrastructure, the total cost is estimated at approximately $1 billion. Some put the estimate at $1.5 billion.
Since its commissioning, the plant has run mostly one-third of its design capacity. For over nine months since its commissioning, it has barely run 50 MMscfd as opposed to its full design capacity of 150 MMscfd. This represents huge economic losses which when analyzed and quantified, leaves a lot of questions with few probable answers.
From information available to the public, the gas plant was supposedly and solely built for the Takoradi Thermal Plant, which is owned by the Volta River Authority, the VRA. Thus, the VRA is the driving force of control for the running of the new gas plant. In effect, the VRA decides when and if Atuabo should run and how much gas it should process while in service.
In this article, we will analyze the above issues in detail and do a few economic calculations to extract some valuable information in order to have a clearer perspective of the situation. We will quantify the financial effects, as well as its consequences on electricity generation.
We will also propose a long term justifiable solution, and also proffer a possible short term solution to avert further losses. We will be using GOR (Gas-Oil Ratio) values of 1250 scf/bsto from data available from neighbouring related oil fields. This will result in a 150 MMscfd gas production at current approximate oil rate of 120,000 barrels a day.
Economic Losses
How much are we losing monetarily for running this billion dollar assets below capacity? In other words, how much are we losing by processing 50 MMscfd instead of a possible 150 MMscfd, thus, shedding off 100 MMscfd of gas, which is consequently flared? Estimating how much 100 MMscfd of natural gas is worth after processing will provide the answers.
First, we can infer from the vapor pressures of LPG coming from Atuabo that raw gas is being processed under what we call “ethane rejection”.
In this mode of operation, ethane (C-1) is “rejected” into the lean gas as opposed to recovering it in the liquids. Processing under “ethane recovery”, as opposed to “ethane rejection” will produce more barrels of liquids, but with higher vapor pressures.
Under “rejection”, as we believe the plant is being run now, approximately 85% of the raw gas entering the plant comes out as lean gas, with the remaining 15% being converted into natural gas liquids, NGL, which we normally refer to as LPG. So, in effect, processing a 100 MMscfd will produce approximately 85 MMscfd lean gas and about 4,500 barrels of LPG per day. So, how much are these products worth?
The Nigerian National Petroleum Cooperation’s (NNPC) current gas price is approximately $3/Mscf, which represents $255,000 per day for an 85 MMscfd lean gas. Henry Hubs (Benchmark pricing of natural gas traded on the NYMEX) current gas price is $2.79/MMBtu, which represents approximately $242,000 per day for an 85 MMscfd gas at 1020 Btu/scf. Using the NNPC’s pricing or Henry Hubs pricing, we lose approximately $255,000 per day or $242,000 per day respectively for the lean gas that a raw 100 MMscfd could have produced.
How much are the liquids which would have been recovered worth? Natural gas liquids are much more valuable than the lean gas produced from a gas plant. The current wholesale LPG price to OMCs is GHC1.9034 per liter. Approximately 4,500 barrels of LPG which could have been recovered from the raw 100 MMscfd, thus represents GHC1.35 million or $347,000 per day. In total, Atuabo is losing approximately $600,000 ($255,000 + $347,000) in revenue daily by shedding off approximately 100 MMscfd. This represents an annual loss of over $219 million, assuming this trend continues.
Power Generation Losses
How much electricity could the 100 MMscfd of gas generate? Using basic conversion of 1 KWh to 3412 Btu, a 100 MMscfd gas contains about 1.24 million KWh of energy, assuming a 1020 Btu raw gas (very conservative).
VRA claims it can generate 550 MW of electricity with 120 MMscfd of gas, which translates to a 37% thermal efficiency of their generating plants. This is lower than one would expect in a combined cycle unit, but we will still use it in our calculations.
At this efficiency, approximately 460 MW of electricity can be generated from a 100 MMscfd. This is almost equal to Ghana’s estimated power supply deficit which is responsible for the current energy crisis.
460 MW is also, almost equal to the generation capacity of the emergency power barges the Government is purchasing from Karpower International at a cost of $1 billion in an attempt to resolve the current energy crises.
In effect, while we flare about 100 MMscfd of gas daily, we need 500 MW of electricity to end the current energy crises, which the flared gas could produce. Lying in Atuabo is a new gas plant capable of processing the gas being flared. Meanwhile, the Sunon-Asogli power plant, which relies on gas supply from Nigeria, and which unfortunately buys Nigerian gas at more than twice NNPC’s prices is down due to unavailability of gas supply from Nigeria.
At the same time, Atuabo, which has the capacity to produce the volumes needed by Sunon-Asogli, is operating below capacity due to VRAs inability to use the full supply. Meanwhile, Ghanaians are living in darkness, with businesses unable to survive due the to unavailability of sufficient power for constant supply.
Fixing our electricity generation problem is not a Herculean task. We do not need a quarter or half of a billion dollars to generate 500, or even 1000 MW of electricity. We all know there are established, smart, quick, cheap and very efficient ways to put up electricity generation installations at a fraction of the current prices we are used to, and at less than half the time
Who is Responsible?
VRA?
The VRA explains that its plants are down and under repair, and other equipments are undergoing maintenance which makes it impossible for them to receive the maximum output of Atuabo, thus, Atuabo will have to run below capacity. Though this may sound like a credible reason for a billion dollar gas facility to run at one-third its capacity, it obviously leaves a lot of questions unanswered.
First, how much is the VRA itself losing as a result of its plants and equipment undergoing so-called maintenance and repairs? For its inability to run some of its plants, the VRA is generating approximately 230 MW of electricity, against a possible 550 MW, thus shedding 320 MW. At 37% thermal efficiency, 320 MW of electricity would have required 70 MMscfd of gas to generate.
If the VRA were to generate this amount that its currently shedding due to so-called repairs and maintenance, it will be buying the additional 70 MMscfd gas at $210,000 per day at NNPC’s price to generate the 320 MW they are currently shedding.
At current ECG residential tariff of GHC0.2054/kWh or $0.051/kWh (being very conservative), 320 MW of electricity is equivalent to $391,000 per day revenue.
In other words, if the VRA were to generate the 320 MW, they would have spent $210,000 per day on gas from Atuabo, to generate 320 MW of electricity which would have sold for $391,000 per day. This represents additional gross operational revenue of $181,000 per day ($391,000 – $210.000) or $66 million per year.
One will ask if the VRA does not find these huge financial and energy-related losses motivation enough for the so-called maintenance and plant conversion works and repairs to be completed with the urgency it deserves. In any case, it is abnormal for an industrial plant’s equipment to be down for close to a year for repairs or maintenance, unless one is considering a total equipment shutdown.
Ghana Gas?
The Ghana National Gas Company, which built, owned and operated the gas infrastructure, comfortably shirks off any responsibility for their inability to run at maximum capacity due to the fact that they are prepared to supply if there is demand from the VRA. Well, assuming the Atuabo gas plant was built by a private company, with funding from individual private investors, the responsibility for such losses cannot and will not be blamed on any other person or entity, but will be laid at the doorstep of management.
In a private firm or entity, these losses will not be tolerated, excuses will be untenable, bonuses will be truncated, management will have sleepless nights, and the ultimate relieve of duty will be imminent. For these and other reasons, it is a fact that a private firm will most likely eliminate every possible factor which may cause the facility to shut down or run below capacity, even before construction begins.
Evidently, the gas plant was built without considering the imminent risk of pegging its profitability to an older thermal plant which is known to have numerous unresolved technical problems. All over the world, before a project of this magnitude is considered, all possible risks, economic or otherwise, are identified, considered and brought to a feasible solution to ensure the profitability of the project does not hang in the balance after monies have been spent.
The case of Atuabo is analogous to an individual planning to manufacture a product that cannot be stored, but which needs to be used immediately after production.
In order to ensure that the facility runs without interruption, the individual will most likely establish access to more than one customer to ensure that if one customer falls off the line, another customer is readily available to buy. Ensuring uninterrupted access to a large customer base is as important as manufacturing the product itself.
When the actions and inactions of managers cause the state to loose huge sums of money, like it’s happening at the VRA, some of us expect our Parliamentarians, who represent us, to summon the managers of these institutions before the house for interrogation and explanation, like they do to others.
Linking Atuabo and Tema with New Pipeline
Tema is the industrial hub of Ghana with lots of factories running engines and other machines on expensive crude oil and electricity. It is home to a 45,000 barrel/day capacity oil refinery. Tema, located just 25 km from the nation’s capital, also boasts of an aluminum smelter and other generating plants. These industrial facilities would save over 35% of the cost of their energy needs if they were to run on natural gas.
The western region is producing oil and gas in significant quantities, with production likely to continue for at least the next two decades. In summary, there is an energy demand in one part of the country, with a huge supply at the other. The economics of building a new pipeline to link both areas is enormous and would have solved all the current losses we outlined. In fact, one would have expected this to be part of the entire natural gas infrastructure project. So, how much will it cost to build a pipeline?
Considering current global pipeline construction costs, Ghana’s terrain and topography, estimating pipeline construction cost at $100,000 per inch-mile is quite conservative. At this cost, a 16-inch pipeline running the 220 miles distance from Atuabo to Tema will cost approximately $352 million (+/- 35%) to construct. This is just about 30% of the total cost of the gas infrastructure project. It also represents a one and a half year payback period, considering current losses due to inability to transport gas to areas in demand.
A pipeline of this size can flow an excess of 300 MMscfd with not more than one compressor station between the routes. With a pipeline, Atuabo is guaranteed to run at full capacity at all times with the flexibility of moving gas to where it is needed.
Atuabo will no longer have to depend on the VRA for its survival and profitability. Also, at the projected growth in the oil/gas sector in the western region, a pipeline will have to be built anyways. It is economically reasonable to build it now and start reaping its benefits than to build it later.
Furthermore, it is a high safety risk to transport high vapor pressure condensate and LPG being produced at Atuabo over long distances in trucks, not to mention the huge losses as a result of flash vaporization during transport. It is better to allow trucks to engage in short distance deliveries of high vapor pressure liquids to guarantee their safety and life span by building pipelines to do the long distance transports. Trucks can safety transport low vapor pressure liquids as it is done in many places all over the world.
Besides, the cost of transporting fluids via pipeline is approximately one third of the cost of using trucks. The volumes that a pipeline can transport are just a fraction of that of a truck, and pipeline transport does not require the burning of fuel during transport.
There is a temptation to utilize West African Gas Pipelines (WAGPCO) pipeline to reverse flow between Atuabo and Tema. First, Ghana owns only 16.3% shares in WAGPCO. It will probably cost a couple of millions of dollars to make the necessary valve, piping and instrumentation changes to allow for reverse flow.
How long it will take to secure such a deal with all the owners of WAGPCO. What does the future hold for this deal in the event of any changes in plan by the owners? How much will Ghana have to pay per mscfd of gas transported? A cursory analysis makes it highly uneconomical. Building a new state-owned pipeline should be the target. And from all indications, Ghana cannot have enough pipelines between the Western part of Ghana and Greater Accra.
Possible Temporary Technical Solution to Avert Further Losses At the current state of our oil fields, associated natural gas volumes which are not sent to Atuabo for processing are flared at the offshore wellhead. In effect, either Atuabo is processing the gas or the gas is going up in a clean smoke at the tip of a flare.
How do we recover some of the losses, while we wait for a possible long term solution? The best option is to process the additional volumes that the VRA is not ready for, recover the valuable liquids (LPG and condensates) and flare the processed lean gas at the plants flare.
This is not a common practice because gas plants all over the world almost always have guaranteed delivery points by design and wouldn’t have to do this to recover losses.
To do this, Atuabo can process higher volumes under “ethane recovery” to a point where the vapor pressure of the recovered LPG is just close enough to the Ghana Standards Board’s maximum of 10 barg. This will recover as much liquids as possible from the gas, while ensuring the LPG is within standard. The lean gas needed by the VRA is run through the plants compressors for delivery, while the remaining excess gas is bypassed around the residue and expander’s compressors and sent to the plants flare header to flare.
What this basically means is that, instead of flaring all the raw, rich, unwanted, unprocessed 100 MMscfd at the wellhead, it is sent to the plant to recover the liquids it contains before flaring. In any case, flaring off a 950 – 1020 Btu lean gas is environmentally safer than flaring off a 2000 – 3,000 Btu gas at the wellhead. Considering and implementing this will recover the additional 4,500 barrels LPG and save over 55% of the current losses, which is approximately $330,000 per day, or $120 million a year.
The first concern for this kind of operation is determining whether the design capacity of the plants flare system is adequate for such large volumes. This can easily be resolved by replacing the flare stacks or pilots, for approximately less than $200,000 if the capacity of flare system is not adequate. The next concern is the seeking of environmental permit approval from the EPA to flare larger gas volumes at the plant. This can easily be resolved by putting up a strong environmental argument based on the fact that, flaring leaner gas, as opposed to raw rich gas is environmentally safer, irrespective of the location of flare.
Discussions
Wood McKenzie, a global consultancy group estimates that Ghana will be producing approximately 650 MMscfd by 2020, an estimate that can easily be corroborated by simple calculations. At this volume, Ghana should not have problems with being energy sufficient, granted this gas resource is captured and utilized. 650 MMscfd of natural gas, if processed will yield an excess of 1.5 billion dollars per year in revenue. That’s more than the current revenue generated from oil and more than the recent $1 billion IMF bailout.
650 MMscfd by the year 2020 can generate about 3,000 MW of electricity at a heat rate of 7,500 Btu/kWh. That is almost 3 times the installed capacity of Akosombo, and more than Ghana’s current total installed capacity.
Though some of us will defend the use of coal by developing countries for energy generation to the chagrin of Environmentalists, Ghana does not need to import coal from South Africa to generate electricity.
Natural gas can provide all our needs, considering the fact that natural gas volumes will continue to increase as exploration and drilling works continue for perhaps, many decades.
We must acknowledge the fact that, democracy and natural resources do not guarantee economic progress. We can have all the best Lawyers, Judges, Doctors, Engineers, Politicians and serial callers, but without aggressive technological industrialization, there cannot be any meaningful economic advancement. Economic progress will remain at negligible levels until there is industrial development.
Building one refinery, one power plant or a gas plant, a shoe factory or a small tomato factory is not revolutionary enough to propel faster industrial and subsequent economic growth. If half of the funds Government spends on building roads were used to build profitable industrial infrastructure to process our raw resources, all our roads would be fixed with profits generated by these facilities.
By embracing hard technological thinking, instead of the unnecessary political arguments, frivolous campaigns, needless conflict and feeble-minded tribalism, most of our problems can be solved with minimal external help.
Developing countries with industrialization and technological deficits continue to have their natural resources extracted by foreign industrialized countries who keep up to 90% of the resources they extract, by virtue of contractual agreements.
These developing countries then export the little 10% of their resource they receive at half the price, and eventually import these same resources as finished processed products from these industrialized countries at twice the price.
Industrialization is the most important catalyst for economic development as was proven by the likes of Andrew Carnegie, John Rockefeller, Cornelius Vanderbilt, Thomas Edison, J.P. Morgan and others in the 1900’s. These men put the USA at the top of the world economic chart after centuries of domination by India, China, France and the UK, and made huge personal fortunes in the process.
Many developed countries underwent massive industrial advancement 100 years ago. Ghana and Africa is late and cannot wait. We do not need multi-millions or billions of dollars for the building and installation of every industrial processing or production infrastructure, as we have always been made to believe.
There are many proven and cost-effective, albeit unpopular, ways for accelerated industrialization in most sectors of our economy. With God on our side and the right decisions by our leaders, we should get there.
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