What Our Oil Cannot Do For Us and What We Must Not Allow It To Do

By Kofi Bentil, Bright Simons, Franklin Cudjoe, IMANI GHANA.

Oil has been called “The Devil’s Excrement” because of its potential to mess things up. Oil is also a highly technical and highly political subject, but if well managed it can make things better. One of the ways it can mess thing up is to raise expectations unjustifiably high, avoiding this requires serious communications management to ensure clarity in explaining the often-­complex matters. The way expectations are managed can make Ghana’s Oil a blessing, a curse or a hoax. It depends on leadership and how people are prepared, if leadership does not manage the expectation right, people will be extremely optimistic about how Oil can change their wellbeing and if that doesn’t happen they will be disillusioned and sometimes distressed enough to be violent, or even sabotage the Oil industry, examples abound in our sub region.

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As we see it Ghana is not doing well with the management of expectations, from the previous government to the current, most statements have given the impression that Oil will greatly improve national (and personal revenues) generate huge employment and generally lead to an almost instant easing of economic and financial pressure on citizens. The effect is seen in various over optimistic utterances in the populace, and some people even taking up badly conceived ‘courses’ in the mushrooming ‘Oil industry Schools’ to qualify them to work in the Oil industry. Point is, the current structure (and youth) of Ghana’s Oil makes it unlikely to generate huge employment, or even improve personal revenues significantly at least in the short term. Even in the medium to long term, it is most likely to generate little direct employment, or even improve State revenue (because of the expensive setup costs, and the nature of agreements we signed, which is normal in the Oil industry). Indeed it will improve our lot somewhat, but that is if we take steps to ensure we sign good contracts and subsequently maximize production and revenue whilst the Oil price is high, by exporting as much crude as we can, and then optimize our use of the revenues in a way that support economic growth in other sectors, (through infrastructure development). This is mainly because the decline of the Oil industry and the collapse of Oil prices in the near future is a possibility. This also rules out (at least in the short term) our dreams of developing refineries and a downstream Oil and Gas industry. We feel there is a problem, and if we don’t address it quickly we will set ourselves up for serious disappointment later.

There are things our Oil cannot do for us, and things we must not allow it to do. As a Ghanaian, I want the best for this land, and do not wish to be pessimistic or negative. Strategic thinking requires that we look at the facts and not deny them, and then figure out what is best to do under the current circumstance. This is what I seek to do, so forgive me if I dampen your enthusiasm with this hard look at the facts.

 

THINGS OIL CANNOT DO FOR US : JOBS

Our Oil cannot generate direct jobs in significant numbers (in the short term) to fill the current expectations. The Oil process involves the following key activities. Exploration and Discovery, Commercial Drilling, Extraction, Transportation, Export/Refining

EXPLORATION STAGE

With our current find, this stage is past. At the exploration stage what we did as a country was to set up the framework to attract people to come and risk their capital looking for our oil. To attract them we gave generous terms, which guaranteed them handsome profits if they found oil. For many years they didn’t, and they lost money. The recent explorers have been lucky they found the Oil and stand to benefit from the windfall due them from the generous agreements we signed. We (GNPC and the then Government) did the right thing to attract explorers, we shouldn’t be crying over the generous agreements now, without them we wont have found any Oil because we lacked the expertise and financing to do it ourselves. In the exploration stage we generated jobs mostly for GNPC personnel who managed the process and we did well there. Not many more jobs can be generated in this area except the already trained ones leave (which is bad), and we have to retrain others.

DRILLING

We are at the drilling and extraction point currently. Already some drilling has been done, and very few Ghanaians have been involved in that process mainly because Oil drilling especially offshore is a highly technical, capital intensive endeavour, requiring specialized technology, experience and skill. The expense involved makes the investors totally reluctant to use anything but the best to secure their investments, so that if anything goes wrong, they are assured that failure was not due to a lack of expertise. We are limited in determining who they must employ in this process. The usual thing is to encourage and even try to legislate that; as much as possible, local talent be used, but invariably (especially in cases like Ghana which didn’t have an Oil industry) the required expertise will be lacking, thus we wont have many Ghanaians involved in the drilling work, that is nothing to cry about.

EXTRACTION

Ghana’s Oil will be extracted using an Floating Platform (already ordered) this ‘special ship’ will take out the oil, store it and pump it straight onto waiting tankers and shipped off as crude oil, sold to buyers. This means apart from what we need for national consumption, most of our current production won’t come onshore. This means a number of things: a. On the Floating Platform itself, there is a maximum of 200 jobs mostly in the form of highly skilled and technically intensive, experience requiring functions, which the drilling companies are likely to fill using people from the industry who have the required experience and expertise. They will in no way compromise this exercise by allowing us to dictate who should be employed, and even if they did there is a maximum of 200 jobs. Though there can create collateral benefit for families etc, how much really is it in a population of 25 million people? We must not pick a fight over this. b. There will be no local refining of our Oil for sale to the world market and therefore the downstream industries, which could generate jobs etc won’t happen as some have said, (at least not in the short term). This is not a bad thing, considering our current situation. Contrary to the impressions created through statements from various places, the truth is that Ghana is in no shape financially, or otherwise to start a downstream Oil and Gas industry, and we wont be ready for a while to do so, our best bet is to sell the crude and manage the revenues until we are able to refine it ourselves.

I have heard and read positions that said if we are not able to refine our Oil ourselves and create an integrated, downstream, Oil industry, we should leave the Oil in the ground, until we can do so. That sounds logical, but a close look will show that it is an uninformed position, more sentimental that strategic. The reality in the Oil industry (I cant discuss all here) will show that the better option is to sell crude as most countries do today (including those with the technology to have downstream industries eg the Scandinavians). Crude Oil is therefore equal to revenue. The main issue is to maximize revenue and manage it optimally (maximize and optimize). I wish we could get more but these are the truths. c. If there will be no downstream industry (in the short term) then the expected jobs wont materialize. At least not directly from the Oil industry. We believe that jobs can be created indirectly through preceding infrastructural investments in the Oil catchment areas (mostly the Western-­?Coastal corridor) to facilitate the industry. Roads, railways, various facilities for Oil workers and citizens in the catchment areas. If we do these, we are likely to create jobs in the short term in construction and the services ancillary to oil.

TRANSPORTATION

The other area for potential employment generation is in the transportation of oil, whether to refineries or to waiting vessels. This is a major industry especially in Europe where Oil and gas resources are shared in complex arrangements between countries and is transported in all kinds of ways (pipelines, ships, by road etc), and distributed (through state and private intermediaries) to various countries. We don’t have the European situation of an integrated sub-­?region, which makes this possible. The closest we have come to that is the West African Gas Pipeline, which is not working too well. Our Oil will therefore be transported to ships and exported. This makes the transportation challenge simple. The good part is that it will expedite things; a simple system also is less of a pollution risk. The bad news is that it wont generate many jobs. We don’t get to benefit from the jobs and other collateral benefits that arise from an intricate transportation system. We could decide that our Oil will be transported onshore and stored, and then distributed from land, this will create more jobs, but it will also make things complex, needlessly expensive and risky, worse still it will put us at great risk of pollution on both sea and land. In comparison, the onshore loading and export system is far safer, cheaper and less risky option. We must not complicate things in our quest to create jobs.

EXPORT/REFINING

Ghana has one refinery, and it doesn’t meet all our local needs. We have (even before the Oil find) proposed that like South Korea (which doesn’t have oil) we should build Oil refineries and export refined products to the west African sub region where refinery capacity is scarce, (even Nigeria buys refined products). Refineries and downstream Oil industry have little to do with drilling oil. We can take steps to do this as we move our economy forward, but we must not tie that to the current Oil find. Why? If we decide to wait until we build refinery capacity, we will wait for over 10 years, this clearly is not a good option especially because there are indications that Oil prices could fall in a few years. We must also not make the mistake of creating another State Owned Oil refinery; it must be a totally private investment (whether local or foreign).

OIL’S DECLINE

Another reason why Ghana must export as much crude oil as possible in the short term is because there are indications that the importance (and therefore price) of crude Oil is likely to decline. The worlds biggest market and consumer of petroleum (North America and Europe) has embarked on an unprecedented quest to develop alternatives to crude oil. Never in the history of mankind has so much effort and money been put towards research and development of alternative fuels. Indications are that various viable alternatives have already been developed to effectively replace oil, from Hydrogen fuel to solar/wind, power, and biofuels, though in our view these technologies are not mature enough to replace oil, people are already claiming that the end of dependence on Oil is imminent. Not even the expected high demand of China, can make up for the American and EU markets. This means if we wait to develop local technology or expertise before we get our Oil out, we might end up with a price so low that it wont be profitable to even get it out of the ground. We must also not forget that major new Oilfields have been discovered and developed in places like Brazil, which will increase Oil supply soon and further depress prices. All these mean we have to be quick to get out Oil out, now that the prices are high, and sell it for cash, which we can then use to get the things we need so that when the prices fall we wont be affected.

HIGH EXPECTATION

The above and more are indicative that the high expectations we have built for Oil are a bit unjustified. Our leaders must do better managing this issue in order not to upset the populace 10 years down the line. WHAT WE MUST NOT ALLOW OIL TO DO COLLAPSE EXISTING SECTORS The high expectations can lead to the situation, which happened in Nigeria where the rural areas were emptied of youth who flocked to cities and Oil centers looking for jobs, this eventually collapsed the agro industry in Nigeria. I remember learning about the ‘Groundnut Mountains’ of Nigeria and how Nigeria was a major producer of Cocoa, Palm Oil etc. all this collapsed with Oil’s arrival. We must not allow Oil to do this to our Cocoa, Coffee and other sectors. An overhyped expectation can lead to just this, we must not allow that to happen. INFLATING THE CEDI AND MAKING EXPORTS EXPENSIVE We must also ensure that we sequester the Oil revenues so securely that the money does not over inflate the Cedi’s value, we must not put Oil revenue in the Consolidated Fund, or the Single Treasury Account. I am aware there are steps towards this end, but I still urge a serious resolve on the part of all leaders from all political sides to ensure this. A failure to do this will lead to a false bloating of our economy due to Oil revenues, which could lead to a disastrous rise in the value of the cedi, which will affect our exports, and could have other undesirable effects, which ultimately can kill whole sectors of our economy. We must ensure it goes into productive infrastructure to rather boost other sectors of our economy.

CIVIL UNREST AND INJUSTICE

We must not allow Oil to create strife by being unjust to the areas it is taken from. I mean the Western Region. The people there have been calm all these years as the rest of the nation takes resources from there leaving them with devastation. I have a feeling they are approaching the brink and won’t sit by for the same to be done with Oil. Clearly the Western Region will bear the worst brunt of the Oil boom and it is only fair that they must enjoy their fair share of it. The question is what is their fair share. I will suggest that for every Cedi that is earned in Oil a third, i.e. 30% must go to the Western Region. This is to compensate for all the problems caused by exploiting other resources Gold, Timber, etc, etc, and is likely to appease them. It will also have the effect of creating infrastructure, which will allow us to extract the Oil efficiently and safely. We must not allow Oil to become the tipping point for the Western Region; we must use it to do justice to them.

POLLUTION

We must not allow ourselves to enter agreements, which allow people to pollute our land or sea. Whatever agreement we enter into must have strict anti pollution clauses, which makes it incumbent on those in the industry to ensure that there will be no pollution and if ever it happens there will be swift remedial action. We must make it extremely expensive for people to disregard our rules on pollution. If we slack on this, we will have hell to pay, once pollution starts and is not seriously checked it gets worse and worse. We must not allow Oil to mess our lands and sea up.

HEIGHTENED POLITICAL TENSION

We must not allow Oil to raise the stakes in our politics to the point where it becomes more heated than it already is. Even without massive resources we daily hear of cases where politicians have looted state coffers. Many believe that the biggest incentive for entering politics in Ghana is to gain access to state resources so one can help himself to it. Past and even recent events make this undeniable, enter Oil, and the mix becomes extremely volatile, Oil will ratchet up the stakes intensely if we are not vigilant, and will make it extremely attractive for people to seek political office with the intention to help themselves to the revenue. There are many examples in Africa especially West Africa on this. We must not allow Oil to make our politics more precarious than it already is.

WASTEFUL EXPENDITURE / ENDURING INVESTMENTS

A key issue is what we should use the Oil revenue for. We propose that all Oil revenue must be used for infrastructural development. We are aware of the President’s proposal to use part for Human Resource Development, we humbly suggest not!! Human Resource development is so broad it could mean funding the LEAP program which is currently not working well and many are saying is a waste, or Capitation Grant, or Scholarships for people to go abroad, or paying salaries of teachers and lecturers, etc etc; this opens a lot of room for wanton dissipation. On the other hand we have GET fund which takes care of education. We can use that and other sources for Human resource development. If we dedicate Oil revenues to infrastructure; 1. We narrow the scope and therefore make it difficult for anyone to divert funds into shady or less productive areas. 2. We already have a $10 billion infrastructure deficit (Roads, Energy, Telecoms, Water, Ports, Sewage Systems etc) and this grows every year with population and urban spread. Our total Oil revenues will not be enough to pay for that, so we should just dedicate it to that and find the top up from elsewhere. 3. Infrastructure ensures that if and when the Oil boom is over, we will have something to show for it; these are enduring Investment. As against training doctors or lecturers who may join the Brain drain. Infrastructure also helps other sectors to grow and be more productive so we will be using Oil to promote other areas, this in itself will help us to avoid the Dutch Disease and also the Resource Curse. It will develop the hinterlands and ensure that our youth remain to support agric and agro business, I dare say it can actually lead to people leaving the cities to the hinterlands because they will have basic infrastructure and cheap land for farming, business and housing. We can make Oil help us if we go this way. GAS…. OUR GREAT HOPE… We must not allow Oil to remove our focus from GAS which in our view is our great energy hope!!

1. Gas, when used close to production source is easy efficient and cheap, but difficult and dangerous to efficiently transport, export and sell, which means we are better off using it close to source.

2. Fortunately Gas can do everything Oil can do. We should there fore export most of our Oil and use most of our Gas.

3. We have already committed ourselves to the WAGP which will combine the gas resources of Nigeria and Ghana and ensure there is enough supply for everything we want to do. We need to take full advantage of that. We must develop a national strategy for Gas utilization. This strategy must include the following:

1. Start a national scheme to change our power systems to Gas driven. Gas powered Electric generating systems can be developed across Ghana fired with Gas cheaply obtained from our own wells or the WAGP.

2. We must start drafting legislation, which will convert all municipal and public transportation systems to gas driven. This will ensure cleaner air and cheaper fuel, and allow us to export most of our petroleum and petrol.

3. We must encourage the use of Gas as a household fuel in rural areas. This will improve lives and remove the drudgery of life, especially for women, and also save our forests through reduced use of wood as fuel.

4. I do believe that we can develop an industry in Ghana to manufacture gas driven engines for various purposes, and export them across the sub region and afar. We could even task our engineers to develop gas driven rail engines for our use. We must not allow Oil to remove our focus from the great potential of Gas. As I mentioned earlier I would wish that we could be more optimistic of Oil, but we must face the facts and work smart to avoid disappointment. We propose a few more suggestions.

 

RECOMMENDATIONS: MEDIUM TERM 5 TO 10 YEARS

1. We must draw up laws that make local partnership mandatory for companies seeking to be in the Oil industry. Private Ghanaians (not government) must own a minimum of 30% of every company. This will ensure we have a leg in every deal.

2. Insist on Ghanaian technical people being trained on every aspect of the Oil extraction, transportation and refining process. Others must be trained in the trading and international financing aspects.

3. In the medium term the best we can get is to have Ghanaians trained, as we allow the foreigners to keep the systems running at the full capacity so we can take out and sell as much crude as possible whilst the price is still high.

4. A major preoccupation at this stage will be to focus on the people in the ‘Oil Corridor’ (the Western Coastal Stretch), provide education and start municipal infrastructure projects which help them to get jobs, make them happy so they support the industry instead of making them feel left out and start thinking about sabotage.

5. We should develop an industry based on Gas driven engines and convert our energy requirements to use Gas.

6. We must strategize to optimize the revenue usage from oil. Using the Oil Revenues Commission model.

LONG TERM

We must work hard to gradually take over as much of the Oil and Gas industry as we can, and ensure we will not pollute the environment for generations unborn. We must also accept that we will always need technology and therefore foreign participation. Ghana has many examples to learn from, we don’t have an excuse to fail.

Source: GhanaWeb

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