Floodlight
West African country is enduring hard times – and critics say plan to import liquefied natural gas will only make things worse
Fri 4 Aug 2023 07.00 CEST
John Gakpo has milled corn to make kenkey – a cornmeal dumpling and Ghana’s staple food – in a dimly lit wooden shack in a suburb of the capital, Accra, for 15 years.
In the past, his earnings have been sufficient to provide for his family – but not any more.
Once the poster-child economy for west Africa, Ghana is suffering from its worst economic crisis in a generation. The debt-laden nation is gripped by soaring inflation and a depreciating currency that has pushed it to default on some of its debt payments.
“Times are hard,” said Gakpo. His electricity bill has doubled in a year. To cope, he has had to cut back on buying food for his family.
Yet opposition politicians, energy analysts and local NGOs have warned that plans to import liquefied natural gas (LNG), a fossil fuel, under a 17-year agreement with oil giant Shell could make things worse.
The agreement, they say, could push up electricity prices, hamstring the transition to renewable energy and perpetuate a cycle of fossil-fuel related debt.
Ghana is heavily relying on gas to meet its growing power needs. Gas generates half of its electricity, while less than 1% comes from solar.
The government argues importing LNG will shore up Ghana’s energy security, power the country’s industrial development and displace dirtier and more expensive heavy fuel oil.
Ghana’s electricity demand is projected to double between 2022 and the early 2030s. The project consortium says gas will need to meet virtually all of this additional demand.
To do so, it is constructing a $400m (£316m) LNG terminal, funded by private equity investors and supported by development finance institutions. Project partners say the terminal could turn Ghana into a hub for providing LNG to the west African market.
But critics have denounced the project as an example of how mismanaged gas and power investments in Ghana are financially crippling the country and failing to deliver reliable and affordable energy. They have urged the government to suspend the project.
LNG requires gas to be to liquefied, shipped and then regasified. This energy-hungry process makes LNG more carbon-intensive than ordinary gas and increases the risk of leaking methane – a potent greenhouse gas contributing to climate change.
Like many other African nations, Ghana has identified gas as a transition fuel to cleaner sources. But Omar Elmawi, of the Don’t Gas Africa campaign, said locking countries into new and expensive gas projects was “perpetuating a cycle of dependence on fossil fuels”.
“Rather than investing in LNG terminals and pipelines, we should be prioritising renewable energy sources that can provide clean, affordable, and sustainable power to uplift the over 600 million Africans that are energy poor,” he said.
Some analysts say Ghana could need additional gas supplies in future to meet its growing power needs. But under the deal, Ghana will have to pay charges for some of the LNG even if it unable to use it – a commonly used type of gas contract known as “take-or-pay”.
However, neither the contract nor the liabilities Ghana could incur have been made public.
For many developing countries, take-or-pay obligations can become a form of public debt, explained Accra-based analyst Rushaiya Ibrahim-Tanko, of the Energy for Growth Hub. “That’s why we are asking for these contracts to be made transparent,” she said.
Q&ATake-or-pay contracts: Ghana’s gas curse
“Take-or-pay” contracts are commonly used in LNG and power supply deals. The provision requires energy buyers to commit to purchase a predetermined amount of oil, gas or power or pay charges if it is unable to take the full amount.
Ghana has a history of failing to meet its take-or-pay obligations. Following a period of power shortages in 2012-2016, Ghana’s previous government signed dozens of emergency power contracts with support from development finance institutions.
From a severe undersupply crisis, Ghana became contracted to purchase gas and power beyond what it could use. At the end of 2020, this was costing Ghana $1.2bn (£950m) a year.
Part of the bill came from an unfavourable “take-or-pay” agreement with oil company Eni to buy gas produced from its deepwater Sankofa field off Ghana’s western coast. But a lack of infrastructure meant Ghana was unable to use all the gas it had committed to buy.
The IMF estimates that take-or-pay contracts and inadequate power tariffs have cost the country 2% of its GDP annually since 2019.
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Opponents say Ghana cannot afford the opaque deal at a time when the country is receiving its 17th bailout from the International Monetary Fund (IMF), the lender of last resort.
Denis Gyeyir, the Africa programme officer at the Natural Resource Governance Institute in Accra, likened the deal to a rope “hanging around our necks” that could leave cash-strapped Ghana to “suffocate” in more debt.
The energy sector has been a significant contributor to Ghana’s financial troubles. A lack of planning and previous unfavourable take-or-pay contracts have locked Ghana into paying for far more gas and power than it could use, pushing the sector into spiralling debt.
Meanwhile, Ghana is unable to pay for all the power it consumes. Independent power producers have threatened to shut down their plants if the government does not pay $1.7bn in outstanding debt it owes them.
For Tess Woolfenden, senior policy officer at Debt Justice, the situation “exemplifies that Ghana is in a lose-lose situation with these take-or-pay contracts”, describing “a very toxic cycle” of fossil fuel investments exacerbating debt.
At the same time, the country is not using all of its resources. The government has allowed oil company Tullow to flare gas from its offshore oilfields because it is unable to process the gas. Flaring is a wasteful practice that releases climate-heating carbon dioxide and methane into the atmosphere and is harmful to human health.
Analysis of government data shows that between 2019 and 2022, Tullow flared or re-injected close to $400m worth of gas, according to the Africa Centre for Energy Policy (Acep).
In 2022 alone, Tullow flared or reinjected two and a half times more gas than Ghana could receive when commercial operations begin at the LNG terminal in 2025. LNG deliveries are expected to be phased in and reach full capacity by the end of the decade.
Tullow has committed to end routine flaring by 2025 and says it is working to agree a long-term gas deal with the Ghanaian government.
Located in the eastern port of Tema, in Ghana’s industrial enclave, the floating LNG terminal will use converted tankers to store and regasify the liquid gas. It will be able to process about 30% of Ghana’s electricity generating capacity.
The project is a partnership between two leading Africa-focused private equity firms: London-based Helios Investment Partners and the Africa Infrastructure Investment Managers (AIIM).
Through investments in AIIM, the UK and Germany’s development finance institutions indirectly supported the project. Both argued AIIM funded necessary infrastructure to meet growing energy demand in Africa.
AIIM was the only project partner to respond to a request for comment. It said the LNG terminal would ensure “a significant portion of the population in Ghana can benefit from cleaner and more economical energy sources” and help reduce the cost of power generation.
But energy analysts are concerned the opposite may be true. Extracts of the contract obtained by Acep show the price of LNG is indexed on the price of oil – a common practice for long-term LNG contracts which exposes developing countries to volatile crude prices. As a result, several analyses found LNG could be Ghana’s most expensive gas supply.
“What the Tema LNG plan will do is make the electricity much, much more expensive,” said opposition MP John Jinapor, former deputy minister of energy.
Ghana’s energy sector debt is already diverting investments away from sustainable development.
In its 2023 budget, the government has planned to spend three times more to offset the energy sector shortfalls than on investments in the agriculture, fisheries, roads, education, gender, social protection and health sectors combined.
Moreover, the crisis has left little room for the deployment of renewable energy.
To address the power oversupply issue, the government suspended licences for grid-connected solar and wind projects in 2017, which was not lifted until this April. Two years later, Ghana postponed by 10 years a goal to achieve 10% of renewables in its energy mix by 2020.
Dennis Asare, of the thinktank Imani, said the long-term LNG contract will incentivise the use of gas and “delay the energy transition”.
“We have enormous renewable resources to meet our energy needs but the government is more focused on this LNG agreement,” he said, warning that lower-income households, like the miller Gakpo and his family, will “bear the brunt” of a deepening energy crisis.
Additional reporting by Emmanuel Ameyaw. This reporting was produced in collaboration with Climate Home News and Floodlight News, and partially funded by the Sunrise Project.
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Source link : https://amp.theguardian.com/world/2023/aug/04/ghana-lng-imports-fossil-fuel-debt
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Publish date : 2023-08-04 07:00:00
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