The gas conundrum

Business News of Tuesday, 9 April 2013

Source: B&FT

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The IMANI Centre for Policy and Education says the gas infrastructure development project is only about 33 percent complete, and the most realistic timeline for the delivery of gas to the Aboadze thermal plant will be early 2014.

“Observations of all parts of the project combined together, and notwithstanding the valiant work Ghana Gas and its contractors have done on the pipeline system, lead us to conclude that 66 percent of the work remains outstanding,” IMANI said, in sharp contrast to the Ghana Gas Company’s position that work on the project is about 65 to 70 percent complete.

A source with knowledge on the matter told B&FT, however, that there was an error in IMANI’s assessment if it was based solely on their visit to plant site in the Western Region, without recourse to procurement and fabrication activities happening in China and Canada.

“If they are saying construction work, which is about 20 to 25% of the whole schedule, is about 30% done then they should be clear about that; or if they want to say that the processing plant construction is 30% done, then we have to know because engineering has been completed, processing plant equipment is being offloaded from the Takoradi Port…So if IMANI goes and sees a gas processing plant site and says, based on that work is 33% complete, then there is an error,” the source said.

Although it said its 33% rating is on “the overall project,” IMANI itself admits that “the project may still be fast-tracked for completion by end of 2013 if the flow of funds are to be assured for any such acceleration,” — adding as a caveat in a note accompanying the e-mail distributing the report: “We are always open to altering our conclusions when our information changes.”

The report further admitted that of all components of the project, the pipeline system has seen the most progress — with the onshore pipeline measuring about 111 kilometres from Atuabo through Pumpuni to Aboadze about 65 percent to 70 percent complete, and accounting for the bulk of project work completed to date. The report however maintained that in what it termed an “initial report” after a field visit to the project site, IMANI said “there is a hard limitation on the ability of Ghana Gas to accelerate ongoing project execution: the gas processing modules themselves are currently being built by a Canadian company.

“From our investigations, the modular plant requires 20 months of fabrication and engineering, which makes it unlikely — despite recent reports — that it can be completed and shipped before the third quarter of this year.” The US$850million gas project, designed to process an initial 150 million standard cubic feet of gas a day, was initially billed to deliver gas by the end of February 2013. Completion has now been pushed to the end of the year.

Funding for the project, which is part of the US$3billion China Development Bank (CDB) loan, has particularly come up for mention as being a challenge since Government is said to have so far received only US$200million of the loan. IMANI said there are “financing anxieties associated with the slow disbursement of the CDB loan”. Aside from concerns regarding the rate of work, IMANI also raised issues about the overall viability of the plant until more gas comes on-stream sometime in 2015 or even beyond.

“With a plant capacity of 150 million cubic feet (and plans to double this capacity), operating at 30 percent, which is the most likely scenario for more than a year after its inauguration (which we believe will happen in 2014), might represent financial risks. For the project to be viable, it appears Ghana Gas has the urgent task of finding other sources of raw gas for the plant — aside from Jubilee — or hope for a quick ramp-up and early success of Jubilee phase 2.” Also of interest to IMANI was the commercial understanding between VRA, the initial buyer of the fuel, and Ghana Gas, the seller.

Given the unreliability of the West Africa Gas Pipeline — the project’s only real, short-term, competitor — it would seem that Ghana Gas will be negotiating from a stronger position come 2014, IMANI said. “Yet with the Henry Hub prices for natural gas hovering around US$4 per thousand cubic feet, one wonders how much premium Ghana Gas can charge for its gas, and how long it will take to break even on the US$850million investment.

“In fact, based on the plant’s 25-year life-span and the fact that raw gas from Jubilee will only be cost-free in the short-term, there will be serious financial pressure on Ghana Gas if Jubilee fails to triple current production by 2015.

“Thereafter, new sources of raw gas such as Tweneboa-Enyera-Ntome (TEN) will be critical to the long-term sustainability of the entire enterprise, and in particular to plans for a phase-two of the project with a distribution hub at Prestea for lean gas delivery to other buyers in Ghanaian industry apart from VRA,” IMANI said.

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