INSTEPR projects crude oil price to cross $150 by April 2022
The Institute for Energy and Policy Research (INSTEPR) is projecting the price of crude oil to cross the $150 mark on the international market by April 2022.
The projection, the energy think tank noted in its press statement issued on Wednesday, March 9, 2022, is premised on the high demand for petroleum products coupled with the ban on Russian oil exports.
“We are in the initial stages of this war, and no one can predict the happenings in the coming months. The high demand for petroleum products and the ban on Russian exports, can send Crude Oil above USD$150 by April 2022,” the think tank noted.
The increase in crude prices to $150 on the international market will result in a windfall of over $88 bringing in a lot of petroleum revenue to the government.
Despite the benefits to be derived from the windfall, INSTEPR is of the view that soaring crude oil prices can significantly derail the economy which is fragile at the moment.
Adding that, the rising crude prices will also affect industries recovering from the Covid-19 pandemic.
“These soaring prices can significantly derail the economy of the country which is very fragile, affect industries recovering from the Covid-19 pandemic and also deteriorating macroeconomics situation from years of gross overspending. High crude prices should come as good news to the government since Ghana exports crude from our producing fields, Jubilee, TEN and Sankofa Gye-Nyame.
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“In our 2022 Budget the benchmark price for crude oil is USD$62. The ministry of finance should be happy when the international prices are high because there will be a windfall of over USD$60 per barrel of crude sold. Unfortunately, it is not all good news since Ghana only lifts four parcels every 6 months,” it added.
The rising price of the crude oil on the international market is due to the invasion of Ukraine by Russia.
Since the invasion, the price of crude oil has traded from $92 to $130 in two weeks.
The prices of petrol and diesel on the Platt market has increased by 32% because of these high crude prices.
Read details of statement below:
PRESS RELEASE
CRUDE OIL SELLS ABOVE USD $120, DOES GHANA BENEFIT?
In our wildest dreams, no one would have predicted crude oil to sell over USD$ 120 in 2022. Due to the Russian war with Ukraine, Brent Crude has traded from USD$92 to USD$130 within two weeks. The prices of Gasoline (Petrol) and Diesel (Gasoil) on the Platt market has increased by 32% because of these high crude prices. We are in the initial stages of this war, and no one can predict the happenings in the coming months. The high demand for petroleum products and the ban on Russian exports, can send Crude Oil above USD$150 by April 2022.
These soaring prices can significantly derail the economy of the country which is very fragile, affect industries recovering from the Covid-19 pandemic and also deteriorating macroeconomics situation from years of gross overspending. High crude prices should come as good news to the government since Ghana exports crude from our producing fields, Jubilee, TEN and Sankofa Gye-Nyame. In our 2022 Budget the benchmark price for crude oil is USD$62. The ministry of finance should be happy when the international prices are high because there will be a windfall of over USD$60 per barrel of crude sold. Unfortunately, it is not all good news since Ghana only lifts four parcels every 6 months.
The Ministry of Energy and Ghana National Petroleum Corporation in the last 8 years have supervised a no exploration activity in our upstream and the decline production in our producing fields. According to PIAC report for half year 2021, “Ghana produced a total of 27,767,859.00barrels (bbls) of crude oil in the first half of 2021 from its three offshore producing Fields – Jubilee, TEN, and SGN. This represents an 18.9 percent reduction from the first half of 2020 production volume of 34,236,596.97 barrels (bbls) and the second consecutive reduction in year-on-year (y-o-y) crude oil production volumes since inception of Oil production”. The situation from our research has not improved in 2022. The lack of further investment from the Jubilee Partners and ENI has resulted in no new Wells being developed and decline in production of existing Wells.
From 2013 till date, 10 Companies signed Petroleum Agreement for various blocks offshore Ghana, only Springfield has undertaken their exploration activities leading to unitization talks with ENI. It is beyond comprehension that Petroleum Agreements which were for 7 years have not been abrogated with no work done for over 8 years. Most of these 10 companies have not fulfilled their minimum work obligations under the Petroleum Agreement.
The first oil bid and licensing round in Ghana was launched in October 2018, six blocks were made available for this exercise. Three blocks to be awarded through an open and competitive bidding process, two through direct negotiations and one to be solely operated by Ghana National Petroleum Corporation
(GNPC), the national oil company. ENI/Vitol and First E&P were the winners for this bidding process but four years on, government has not completed negotiation with the companies for work to begin.
The decline in production and no upstream exploration activities means that Ghana is deprived of the needed revenue that we would have otherwise received from high international crude prices. Imagine our daily production was over 300,000 barrels per day, Ghana would have done more lifting resulting in more money for all facet of the economy, even to local government common fund which gets 5% of ABFA (Annual Budget Funding Amount). It is interesting to note that the decline in production is also affecting GNPC’s financial position since they are receiving less money year on year.
The Upstream and Midstream is in a mess and INSTEPR does not see any policy direction to correct the situation. Ghana Gas which was set up to add value to our energy sector has become a drain on our resources. According to PIAC, Ghana Gas owe GNPC USD$664,129 595.17. The inefficiency in the power value chain, has resulted in this huge debt. A problem no one wants to fix anytime soon.
Disbursements into the Stabilization Fund and the Heritage Fund was capped by the finance minister as well as a withdrawal from the Stabilization fund during the Covid-19 pandemic. This cap and withdrawals from the Stabilization Fund resulted in a balance of USD$138,837,251 and Heritage fund has USD$676,448,738.39 as of 30th June 2021.
Ghana at this rate will catch the Dutch Diseases sooner than later. A phenomenon that multiple seminars were held between 2008 and 2010 to avoid. We need a more focused and aggressive Upstream policies to avoid the economic disaster ahead. We started borrowing heavily as a nation when we discovered Oil, hoping that in twelve years our oil resources would have quadrupled our GDP. The Voltarian Basin project has become a talk shop, many years after GNPC decided to undertake a 2D seismic survey, this exercise is still not completed. The sad part of the Voltarian Basin story is, the current Petroleum Act does not make provisions for onshore exploration. Meanwhile our Ministry’s technocrats, GNPC engineers and parliamentarians who are aware of this, are taking no steps to address it.
The conversation on E-levy has revealed the poor state of the country’s financial situation. Ghana @ 50 was celebrated with hope of a better future because we had discovered the black gold. 15 years on, has the black gold changed our economy for the better? As we brace ourselves for difficult months ahead, there is a need for an urgent plan for 2022.
INSTEPR would want to call on government to urgently start a stakeholder’s consultation to find solutions to these tough times ahead.
