Gas lock-in: Debt-laden Ghana gambles on LNG imports

By Chloé Farand

For 15 years, 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 Accra, the country’s capital.

In the past, his earnings have been sufficient to provide for his family. But Gakpo is now struggling to make ends meet.

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.

The energy sector has been a major contributor to the country’s financial woes. A lack of planning and unfavourable fossil fuel contracts have previously locked Ghana into paying for gas power far in excess of what it could use, pushing the sector into spiralling debt.

Electricity tariffs have increased around 50% for small businesses and households since September alone. Gakpo says his electricity bill has doubled in a year. To cope, he is cutting back buying food for his family.

Ghana’s Fossil Fuel Gamble: Debt-Ridden Gas Lock-in Risks

Yet opposition lawmakers, energy analysts and local NGOs have warned that Ghana’s plans to import liquified natural gas (LNG) under a 17-year agreement with oil giant Shell could make things worse.

The agreement, they say, risks pushing electricity prices even higher, perpetuate a cycle of fossil-fuel related debt and leave little space for renewable energy.

Until 2020, the UK, Germany and the African Development Bank indirectly channelled development funds for a new LNG terminal in the country. 

The project is part of a $245 billion expansion of gas infrastructure in Africa, according to Global Energy Monitor. But it is among the first to allow commercial LNG imports to a Sub-Saharan African nation.

A gamble for economic development
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 as electricity demand is projected to double between 2022 and the early 2030s.

Proponents say gas power will need to meet virtually all of this added demand, arguing that domestic gas production is reaching capacity and imports from Nigeria are unreliable.

LNG, they say, will help power the country’s industrial development, displace dirtier and more expensive heavy fuel oil and support the roll out of intermittent renewable energy.

This is tied to the construction of a $400 million LNG terminal in the port of Tema. The project aims to turn Ghana into a hub for providing LNG to the West African market.

But critics have denounced the LNG terminal as an example of how mismanaged gas and power investments are financially crippling the country and failing to deliver reliable and affordable energy. They have urged the government to suspend the project.

Analysts agree that additional gas supplies could be needed in future. But under the deal, Ghana will have to pay charges for some of the LNG even if it unable to use it –– a 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.

Opponents say Ghana cannot afford such an 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.

Energy sector crisis
Ghana is still unable to pay for all the power it consumes. Independent power producers have threatened to shut down their plants if the government doesn’t find a way to pay  $1.7billion in outstanding debt it owes.

At the same time, the country isn’t using all its own resources. The government has allowed British oil company Tullow to flare gas from its TEN and Jubilee oil fields 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 into its oil fields 325 billion cubic feet of gas – worth close to $400m, according to the Africa Centre for Energy Policy (Acep).

In 2022 alone, Tullow flared or re-injected two and half times more gas than what Ghana could receive in LNG in the first year of the deal.

“With the amount of gas that we are flaring we could meet a lot of demand for power generation if we are able to create new processing capacity,” Charles Ofori, climate policy lead at Acep, told Climate Home.

The company, which has committed to end routine flaring by 2025, says it is committed to agree a long-term gas sales deal with the Ghanaian government.

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