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African Countries, Gas Development, and Climate Change: The Case of Ghana

COP27 in Egypt saw a much more active and forceful presence of African countries, which are feeling the ravages of both climate change and the global economic system, yet are a marginal contributor to global emissions (3.8% of carbon emissions) and world trade (3% of exports). Ghana’s representatives were leaders of G77 calls for loss and damage support, a facility for which was agreed to in principle at the last moment in the final COP27 statement.

African leaders are calling not only for greater resource support from the developed countries but also arguing that they must be able to develop their fossil energy resources to meet their economic development needs and provide access to modern energy for their populations.

The war in Ukraine and the high energy prices and tight supplies have encouraged international energy companies to consider oil and gas projects in Africa that did not appear viable a couple of years ago.

I had the opportunity recently to meet with a delegation of energy officials from Ghana and discuss the challenges they face in their energy transition. Ghana has committed in its NDC to reduce its GHG emissions by 64 million tons by 2030 and achieve a level of 10% renewable (non-large hydro) generation.

Ghana is fortunate in that while it imports some oil products and natural gas, it has developed over the past decade its domestic oil and gas resources. In the electricity sector, this has allowed gas to replace oil generation and to complement the hydro production from its three major reservoirs as shown in chart below.

Source: International Energy Agency

Crude oil production in 2022 has been about 173,000 barrels per day and natural gas production about 103 billion cubic feet. In addition to domestic gas production, Ghana also imports a very small amount of gas through the West Africa Gas Pipeline from Nigeria and may start receiving imported LNG at the TEMA floating FSRG terminal in 2023, with supplies from Shell. High international gas prices and increasing domestic production however have delayed this project.

The Ghana electricity system had an installed capacity of about 5000MW and a peak of 2864MW in 2021. The system is unbundled into generators, a grid company, and two main distribution companies, ECG and NEDCO in the north. A number of large mining and other industrial users have direct transmission links with the grid company. This situation has exacerbated the growing debt of the power sector, as arrears to independent power producers have increased and may rise to $12.5 billion in 2023. Losses in distribution are very high. This contributes to the deteriorating situation in the economy, as public debt increased to 78% of GDP in March 2022 and external debt jumped from 39% to 44% of GDP. An IMF team visited Ghana in October and is preparing its report on potential financial support.

Electricity demand growth has been averaging over 7% per year and is expected to continue and put new strains on the power sector. The Ghana system’s peak demand is projected to increase from 3,987 MW in 2023 to 5,172 MW in 2027. A recent report from Clifford Chance notes: “The 2022 Electricity Supply Plan for the Ghana Power System highlights that existing generating capacity will be inadequate to serve projected demand for electricity in Ghana and as such, there is a need to secure increased gas supply to existing power generation facilities and to initiate procurement of additional generation capacity.”

Ghana approved a renewable energy master plan in 2019 calling for increases in wind and solar generation and the addition of 1390MW by 2030. The Ghana NDC for COP27 confirms this goal and indicates a requirement for $2.3 billion in investment. But current installed capacity is less than 100MW and larger-scale renewable projects will be needed. The solar and wind resources exist to increase renewable energy generation but significant efforts are needed to reduce both the technical and commercial losses in the electricity distribution system, which current are estimated at 20% and 10% respectively. The prospective IMF program will no doubt have conditions focusing on improving revenues and reducing the quasi-fiscal debt in the power sector. This can create a more favorable environment for investment., which can put Ghana in a position, if domestic gas production increases as expected, to limit use of gas domestically and earn valuable foreign exchange from exports.

In addition to renewables, Ghana has also shown interest in nuclear power. A memorandum of cooperation has been signed with the United States and Japan to help evaluate the potential for SMRs in the future. Improving the financial position of the power sector will be critical to any plans to pursue major capital investment in the nuclear sphere.

In sum, Ghana like other African countries, finds itself in a position where it could benefit economically from both domestic gas exploration and production as well as renewables development but also faces pressure from major countries to phase-out fossil fuels. Although the latter position was not approved by COP27, it will continue to be on the table and is likely to be a significant issue at COP28 in Abu Dhabi next year.

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