The Public Interest and Accountability Committee (PIAC), the body set up to monitor the utilisation of petroleum revenue in Ghana, has said that the most immediate effect of the decline in oil production in Ghana is a reduction of revenue from oil and gas production.
Although petroleum revenue on average constitutes about 7% of total Government revenue, Ghana is reliant on petroleum revenue as a major driver of economic growth.
In periods when crude prices are low and crude oil production consistently declines, this can lead to significant budget deficits from the revenue shortfall. This will make it challenging for the Government to fund essential services such as healthcare, education, and infrastructure projects, which slows down overall economic growth and development.
a member of PIAC, Mr Constantine K.M Kudzedi said at the opening of a consultative workshop to address the declining crude oil production in Ghana, in Accra on Wednesday, October 16. said that in 2019, Ghana witnessed its peak in crude oil production since inception, recording a volume of 71,439,585 barrels from the initial production of about 1.1 million barrels in 2010 through to about 62 million barrels in 2018. This declined to 66,926,806 barrels in 2020, representing 6.3%. Crude oil production further declined to 55,050,391, 51,756,481, and 48,247,036.61 barrels in 2021, 2022 and 2023 respectively, representing 17.75%, 5.98% and 6.78% respectively.
“The 2023 production figure represents the fourth consecutive year of decline in annual production volumes since 2010. Over the last four years, the declining trend has sparked concerns about the future of Ghana’s upstream petroleum industry, and that if the challenges on the producing Fields if any culminating in this decline are not addressed, with new fields being brought on board or investments are attracted, then the sustainability of Ghana’s upstream petroleum industry will be adversely affected thereby jeopardizing the anticipated returns and appropriate share of the oil wealth to stake holders especially the state resource owner,” he said.
Regarding the Factors contributing to the decline, Mr Kudzedi cited Mature Oil Fields as one of them.
Regarding Jubilee Field, he explained that Ghana’s flagship Jubilee oil field, which started production in 2010, has been a key contributor to the country’s oil output. However, like many oil fields, Jubilee is experiencing natural production declines as it matures after 14 years. Production peaked earlier on in the first 9 years and has since been on a downward trend.
On Tweneboa-Enyenra-Ntomme (TEN) and Sankofa Gye-Nyame Fields, he said the TEN and Sankofa Gye-Nyame Fields have also experienced similar trends. While these fields boosted overall output after coming on-stream, they are beginning to follow a natural decline curve and unless further investments are made to enhance production your guess is as good as mine. However, it’s worth noting that, unlike the TEN Field, the SGN Field is predominantly gas-producing.
Underinvestment in Exploration and Production: Regarding limited new discoveries, he stated that Ghana has not made significant new oil discoveries recently; which is key for sustaining long-term production. Exploratory activities have dropped, partly due to the global transition from fossil fuels and partly due to underinvestment by both the government and International Oil Companies (IOCs).
Operational and Technical Challenges: Technical Challenges: There have been technical challenges at some of the production facilities, particularly with equipment malfunctions and maintenance delays. These have contributed to lower-than-expected output from existing oil fields.
Infrastructure Issues: The lack of adequate infrastructure for oil and gas processing, transport, and storage limits production capacity. Delays in projects such as gas processing plant expansion have slowed down oil production rates.
Global Energy Transition: Shift Away from Fossil Fuels: The global energy transition, with increasing emphasis on renewable energy, has created uncertainty in the future of crude oil demand. This has influenced the willingness of investors in long-term oil exploration and production projects in oil-producing nations like Ghana.
While efforts are being made to address these issues, the long-term sustainability of oil production in Ghana remains uncertain unless new and significant reserves are found.
Implications of the decline
Threat to Employment: Ghana’s upstream oil and gas industry provides substantial employment, ranging from engineering to services. A decline in production can lead to International Oil Companies folding up when petroleum projects cease to be commercially viable, which will in turn lead to layoffs and a reduction of job opportunities, increasing the unemployment rate. This does not only affect those directly employed in the oil industry but also has a rippling effect on related sectors such as transportation, manufacturing, and services.
Reduction in Investment: Low petroleum production can deter foreign and domestic investments. Investors may perceive the country as a high-risk investment landscape, especially when more than two-thirds of its existing petroleum contract areas are yet to lead to commercial discoveries, with total production from existing fields on a consistent decline. This will lead to low investor confidence in Ghana’s upstream petroleum industry and can result in a phenomenon known as stranded assets, in the face of the global energy transition.
Investment Shifts: Large institutional investors, including pension funds and sovereign wealth funds, are pulling out of fossil fuel financing of oil companies due to environmental concerns and long-term risks. As investment flows toward renewable energy and green technologies, capital for capital intensive oil exploration and production projects diminishes.
Stranded Assets: As renewable technologies become more cost-competitive and public policy shifts toward decarbonisation, oil reserves and infrastructure risk becoming stranded assets, where investments in oil exploration and infrastructure may no longer generate returns.
