Ghana to record a further decline in oil production at the end of the Year; Oil price hikes to provide a windfall gain
Ghana’s oil production from the three oil fields (Jubliee, Sankofa Gye Nyame (SGN) and Tweneboa Enyenra Ntomme (TEN)) have been on a decline since 2020 after recording its highest annual production of 72.11 million bbls in 2019. In 2020, the country recorded a total oil production of 66.9 million bbls, a 7.2% decrease below the 2019 output largely attributed to the impact of the COVID-19 pandemic and its related restrictions. Despite the ease of the COVID restrictions and resumption of economic activities in 2021, the country’s annual oil production further dipped by 17.7% with an output of 55.05 million bbls, lowest in the past five years.
Coming into 2022, the government expected an increase in oil production by 8% with a benchmark oil output of 59.51 million bbls as indicated in the 2022 budget statement. Our analysis of oil production data from the Petroleum Commission for the first half of the year however shows that the country will not be able to meet the benchmark oil output due to the expected decline in oil production at the end of the year.
The production data show that in the first half of the year (H1), total oil production from the three oil fields totalled 25.9 million bbls which represents a 7% decrease below the H1 2021 oil output. The Jubilee field alone contributed 58% of the total output whilst SGN and TEN contributed 25% and 17% respectively. The H1 decrease in oil production has been occasioned by the decline in production at the SGN and TEN fields by 21% and 34% respectively as compared to their output for the same period in 2021. The Jubilee oil field however increased their H1 production by 17% recording 14.91 million bbls as against 12.8 million bbls in the first half of 2021.
The highest monthly production by the Jubilee field for the first half of the year was 2.86 million bbls in March whilst the lowest production was 1.37 million bbls in May due to the biennial maintenance shutdown of the Jubilee FPSO.
SGN recorded its highest production in January with an output of 1.18 million bbls and in February recorded its lowest production of 950,511.48 bbls. Similarly, TEN oil field made its highest production in January with an output of 791,765 bbls and lowest output of 669,999 bbls in February.
Oil Production for H1 2022 Source: Petroleum Commission
Production Outlook for 2022
With production on course for the second half of the year (H2), the three oil fields need to produce a total of 33,648,189.58 bbls in order to meet the 2022 benchmark oil output. However, considering the dip in H1 2022 oil production, it is highly unlikely for the three oil fields to meet this target by the end of the year.
Our analysis reveals that there is a positive relationship between the H1 and H2 production trends, in that when there is an increase in H1 oil production, there is a relative increase in H2 oil production, and where H1 production declined, H2 production also reduced. For instance, in 2019, when H1 oil production increased by 18%, H2 production also increased by 14%. In 2020, when H1 production decreased by 0.2%, H2 production also reduced by 14%. Subsequently, in 2021 H1 oil production declined by 19% and H2 oil production also reduced by 17%.
With the decline in H1 oil production by 7%, there is every indication that H2 oil production this year is also likely to fall. Based on this, we expect the country’s annual oil production for 2022 to fall below 55.05 million bbls all things being equal. Earlier this year, Fitch Solutions forecasted a 1.9% decline in the country’s oil production for 2022 due to underinvestment in the sector and maturing oil fields.
Implications on Oil Revenue and GDP
The projected decline in oil production this year is expected to have a ripple effect on the country’s GDP. In 2021, the sector’s contribution to GDP reduced from 8.39% to 6.98% due to the fall in production. The rise in oil prices in 2021 above the government’s benchmark price of US$54.75/bbl however resulted in a 17.5% increase in the total revenue from the sector even though production was lower than the previous year.
For this year, global crude oil price has witnessed an upsurge mainly occasioned by the Russia-Ukraine war. At the end of H1 2022, crude oil price stood around US$117.2/bbl representing a 60% jump from US$73.3 in H1 2021. Crude oil price is expected to average US$74/bbl or more at the end of 2022 which is higher than the government’s 2022 benchmark crude price of US$61.23/bbl. This is expected to provide a windfall gain for the country contingent on the margin of oil decline.