Speaking Notes at Gas Options Conference

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1 INVESTOR INSIGHTS INTO GAS ECONOMIES AND PROJECTS Speaking Notes at Gas Options Conference

2 Outline 1. Opening Remarks 2. West Africa Gas Landscape 3. Global Supply Demand Dynamics 4. Ghana Gas Supply Situation 5. Monetizing Gas Resources and Challenges 6. Monetizing Gas Resources - OCTP Case 7. Conclusions 2

3 Opening Remarks Our President, HE Nana Addo Dankwa Akufo-Addo said at the that: "The energy deficit growth in Africa "Providing sufficient power at affordable rates as efficiently as possible is going to be the key driver for growth. HE could not have said it better With fast-growing economies, rising population and increasing urbanization, most African countries are seeing their economic potentials undermined by the energy deficit This has been the reality in Ghana for more than a decade, and is not different in most African countries. In Ghana, some bold steps have been taken, which are helping resolve the challenge sustainably. Investing heavily in domestic upstream gas resources (re: $8bn in Sankofa) Prioritizing domestic gas reserves for power generation Investing in LNG Import Infrastructure to supplement domestic gas production Restructuring / consolidating the gas sector Promoting investment by Independent Power Producers (IPPs) Taking steps to improve efficiency in state energy utilities (e.g. ECG) The vision of the Government is to transform Ghana into the energy hub of the West African sub-region. 3

4 West Africa Gas Landscape - West Africa is fast becoming a major gas player Africa has historically not been major player in gas, with limited reserves and undeveloped discoveries But a string of major discoveries have placed the continent firmly in the global gas map Africa has 606 tcf of proved natural gas reserves (about 9% of global) The region produced 13,479 bcf of natural gas in 2012, (11% of total global production) and exported 3,458 bcf of natural gas in 2013 via pipeline and LNG (9% of global exports, and 26% of Africa production) Nigeria, Equatorial Guinea, Mozambique and Angola were the only natural gas exporters as of 2013 Nigeria was the 4th largest LNG exporter in the world in 2012, - with about 950 bcf of LNG - accounting for 8% of total LNG exports worldwide In Africa, the most efficient use of natural gas is direct conversion to electric power to meet the chronic shortage of energy 4

5 WEST AFRICA GAS LANDSCAPE Currently, considerable amounts of natural gas in Africa is still flared Nigeria flares about 20-25% of its gross production And 63% of the associated gas produced per day during the production of crude oil (NAPIMS Bulletin, 2013). {NAPIMS - National Petroleum Investment Management Service) In Ghana, we have a no-flaring policy Africa must build the infrastructure to avoid flaring and boost gas monetization In Ghana, our Gas Master Plan recognizes the primacy of electricity generation in gas monetization Other uses like petrochemicals will come later when we substantially increase supply through new indigenous discoveries or imports 5

6 Global Supply and Demand Dynamics Global supply and demand dynamics in (oil and) gas have changed significant over the last couple of years and this change is expected to continue over the next several years, due to: The super discoveries in East Africa (Mozambique, Tanzania etc.) The huge increase in production from US shale Major new LNG supplies from Australia Also, increased flexibility and cost-effectiveness in the Floating Storage Regasification Units (FSRUs) have reduced the bottlenecks in monetizing gas It is now easier and faster to put up LNG import terminals According to the US Energy Information Administration (EIA), natural gas consumption worldwide is expected to increase from 120 trillion cubic feet (Tcf) in 2012 to 203 Tcf in 2040 Meanwhile, natural gas producers globally are expected to increase supplies by nearly 69% to 83 Tcf from 2012 to 2040 Africa's natural gas consumption is expected to reach a little over 11 Tcf in 2040 And our natural gas use is expected to increase by an average of 3.3% per year from 2012 to 2040 About 80% of Africa s natural gas demand in 2040 will come from electricity and industrial use Natural gas production in Africa is expected to grow from 7.6 Tcf in 2012 to 9.8 Tcf in 2020, and 16.5 Tcf in

7 Ghana Gas Supply Potential for Industrial Devpt. Potential 450 mmscfd in Ghana A catalyst for industrial development Appropriately priced gas can play a role in energy cost reduction Can support more than 3000 MW of power generation at reasonable cost Will spur the development of infrastructure to ensure local gas utilisation including pipelines Gas transportation infrastructure and processing plant in place for Jubilee and TEN gas Sankofa gas is the game changer for the industry with over 1 trillion cubic feet of NAG Additional gas finds especially onshore can lead to petrochemical industry development, power and gas processing facilities 7

8 GHANA PETROLEUM INDUSTRY OVERVIEW Ghana s Status Emerging Oil and Gas producer with enormous potential Healthy investment climate and stable economy to encourage investment inflows Industry Dynamics Upstream industry currently dominated by international companies (ENI, Tullow, Anadarko, Hess, Kosmos, etc. Participation by Ghanaians is limited due to: Lack of technical and commercial expertise Huge capital investments constraints Generally low risk appetite of Ghanaians Industry leadership by a strong commercially-focused NOC is key 17 Petroleum Agreements (PAs) currently in place (including 3 PAs ratified in 2016) Favourable Ruling on Western Maritime Boundary Government s Objective Ensure the development of a vibrant and flourishing industry Integrate the oil and gas sector into the rest of the economy Derive the utmost from the sector in a sustainable manner 8

9 E&P PARTNERSHIPS IN GHANA GNPC is in partnership with various Exploration and Production (E&P) companies to exploit the nations hydrocarbon potential 9

10 Current Acreage Position 20

11 Ghana s Gas Supply Potential NATURAL GAS RESERVES (BCF) Assets Ultimate Reserves Gross Remaining Reserves Jubilee Mahogany Teak TEN Field Sankofa & Gye Nyame 1,071 1,071 Total Gas Reserves (bcf) 2,050 2,015 - Reserves as at June 30, Gas reserves are reported as sales gas 11

12 Viable potential uses of natural gas In Ghana we developed a Gas Master Plan, which explored this question; We examined the economic feasibility of gas use across different sectors, with due regard to national policies on strategic sectors; and we came to the conclusion that: The most viable use for natural gas in Ghana is to meet the huge energy deficits in the country Now, energy deficit at continental level is a much bigger problem than it is in Ghana Only South Africa (with 46GW), Nigeria (6GW) and probably Kenya (~3GW) have higher installed capacity than Ghana (over 2GW) Therefore, my conclusion is the same: Let s use our gas resources to light up the dark continent. Energy deficit is a binding bottleneck to economic growth, industrialization and poverty reduction 12

13 Viable Uses of Gas Gas-to-power remains the most economically viable way to monetize the numerous gas discoveries made in Africa recently; the power sector can afford higher gas prices relative to other uses Beyond Power generation, most of the other uses need very cheap gas; which is not necessarily available in many African countries. And there are huge infrastructure challenges to transporting gas Pipelines only work for shorter distances LNG works only with huge volumes, and requires sophisticated infrastructure at both the export and import terminals So, for countries with surplus gas (beyond power needs), and to the extent that the infrastructure challenges would be overcome, we could consider other uses like: Fertilizer manufacturing Cement / Clinker production As compressed natural gas as gleaner transport fuel Industrial heat Export through the West African Gas Pipeline Ghana already exports electricity when available through the West African Power Pool arrangement 13

14 Monetising Gas Resources Proven reserves Power Developed market = Monetized gas Liquids Solids e.g. Hydrates These happen in with: Strong institutional leadership Supportive regulatory framework and Right commercial incentives Bridged distance btn reserves and market Etc. 14

15 Monetizing Stranded Gas Huge volumes of stranded gas undermine monetization Estimates of remote or stranded gas reserves range from 40-60% of the world's proven gas reserves Africa has 490 TCF of stranded gas resources Natural gas is of little value when stranded and cannot reach the customer, who may be thousands of miles away. And remember, it is more costly to transport gas because of its relatively low energy content per unit volume It s particularly expensive when transported over long distances as pipeline become uneconomical Lower compression factor implies high cost of transportation per unit of heating value 15

16 Key Challenges in Monetizing Gas Bringing gas projects in Africa to fruition faces a number of challenges In Ghana, when we made our discovery of the Sankofa field, we were immediately faced with a challenge: On one hand, with just over 1Tcf in recoverable reserves, it was large enough to make a significant difference in Ghana s energy mix; to help solve our perennial power outages what we call dum sor But our private sponsors told us there was no well-functioning gas market that they could sell to There were not enough power plants to offtake all the gas including from Jubilee and TEN fields They would not take the credit risk of the public utilities that would offtake the power generated by the power plants On the other hand, the reserves were not large enough to be exported as LNG Therefore, it took a lot of ingenuity to provide the necessary security that enabled the financing of the project. Today, development of the Sankofa field is progressing steadily, and we are on course to achieve First Gas by mid Now, Ghana s gas market is more developed than many other African countries. We therefore have a lot of experiences to share with sister countries and NOCs Given the current low oil price environment, closing the financing of new oil and gas projects is becoming increasingly difficult; Globally, final investment decisions for over US$300bn of projects are being delayed 16

17 Monetising The Offshore Cape Three Points (OCTP) Gas in Ghana The Sankofa Gas Project is a game-changer for Ghana Key Elements of the Project This is a non- associated gas, with reserves of over 1.1 tcf But has significant amount of oil as well ~ 160mmbo.together with 267 bcf of associated gas OCTP is being developed as an integrated oil and gas project Investment is about USD7bn Partners are: ENI, Vitol and GNPC Ghana has 20% stake Contractor parties have 80% stake First gas is expected in 2Q 2018 Production will ramp up to a plateau of 171 mmscf/d which will be maintained for 13 years Terms Sheets of GSA and other agreements were initialled in December Full-termed agreements concluded by

18 OCTP Sankofa Gye-Nyame Background This is an integrated oil & gas development in 2 phases Phase-1 Oil; to comprise:» 8 oil producers» 3 water injectors» 3 Gas injectors» Spread-moored FPSO» etc Phase-2 development of non-associated gas (NAG); to comprise:» 5 gas producers (4 Sankofa Main + 1 Gye-Nyame)» Onshore Receiving Facility (ORF) at Sanzule» 63km 22 OD Gas export pipeline Reserves made up of: 204 MMbbls of oil, and 1,071 bcf of gas as at June 2016 MOEN

19 Monetising the OCTP Gas in Ghana We are dealing with a non-associated gas The economic drivers for monetizing associated gas are different from those for non-associated gas Non-associated gas reserves are developed primarily to produce natural gas, sometimes with some condensate Hence, having a market for non-associated gas is key to raising financing for field development For associated gas, field development is paid for by the crude oil, with which it is associated 19

20 Monetising the OCTP Gas in Ghana Per Ghana s Gas Pricing Policy and Gas Master Plan, domestic power generation is given priority Thus, OCTP (Sankofa) is a gas-to-power project The market for gas is at very early stages; the downstream power sector particularly, needs fixing This requires innovative solutions to make the project bankable: Gas Price Initial Gas price of $9.8/mmBtu; price is adequate to provide fair returns to investors, whilst encouraging market penetration. Significant savings in capital outlay leading to significant price reduction Ghana negotiated to achieve lower gas price through, among others: any reduction in Contractor capital outlay including due to lower than budgeted Developing Costs or GNPC financing part of the project (Pipeline and ORF); reduces price to $8.15/mmBtu Gas Price had to be linked to index of US CPI (70%) and Henry Hub Gas Price (30%) Index will avoid importation of oil volatility With a P-floor linked to US CPI, and a P-cap linked to both Brent Oil price and US CPI 20

21 Monetising the OCTP Gas in Ghana Security Package Security package needed to cover gas offtake and payment risks, but we had to ensure the project is not over-securitized We developed a credit/ payment structure with an offshore collection account GSA is a take or pay (90% of the Annual Contract Quantity) We ve agreed to set up an offshore collection account 4.5 months reserve in an escrow account World Bank Partial Risk Guarantee (PRG) Sovereign Guarantee Multi-Party Agreement to guide the Administration of Payment 21

22 Monetising the OCTP Gas in Ghana Optimization We had to get rid of an expensive processing facility because it wasn t going to pay for itself from liquids production Ghana is still exploring further means to optimise the project Eg. Current plan is to transport high calorific gas to power plants GNPC is considering extracting further liquids from this high calorific gas We look forward for any realistic concepts from investors to help us achieve this objective 22

23 Key Agreements Security Package - To establish and provide a payment mechanism and credit support for the obligation of the buyer under the GSA - Contractors sought tight security structure because the gas market does not exist Heads of Agreement - Defines the roles of relevant parties incl. GNPC, GNGC, Contractors and the MoPt., MoF, BoG across the entire gas system, including: - Development of infrastructure - Approvals etc - Contractors sought to have an overarching agreement that binds all key institutions of state to performance standards under the gas development and sales Gas Sales Agreement - Defines the commercial relationship between Contractors (as Sellers) and GNPC (as Buyers) of the Sankofa Gas Fiscal Support Agreements - Defines the terms under which the State transfers some value to Contractor in the form of fiscal interventions to enable acceptable gas price 23

24 Key Agreements Supplementary Agreement - Outlines certain commercial interventions needed to be taken to enhance the commercial viability of the OCTP integrated project commercially Multi Party Agreement To spell out the respective obligations of various state agencies in ensuring the uninterruptible flow of funds to pay for gas offtake under the take-or-pay obligations of GNPC Trust and Escrow Deed To guide the covenants of the escrow account and spell out the rights and obligations of each party to the Deed including the Escrow Trustee 24

25 Gas Market Issues in Ghana s Power Sector Significant generation Gas supply deficit Nigeria gas through the WAGP is not reliable Ghana considering LNG options Government is considering various options to restructure the power sector Significant investments are required in key infrastructure e.g. substations We need robust security from the downstream sector for bankability 25

26 Ghana Power Situation Proven Gas Reserve Base: ~2.401 trillion cubic feet (tcf) o Associated Gas: tcf o Non-Associated Gas: 1.23 tcf Current capacity demand (incl. reserve margin): ~2,202 MW Current available supply capacity : ~4,183 MW Current Power deficit: ~0 MW Projected annual demand growth: 6% 26

27 Fixing the Downstream Ghana is ensuring that the entire value chain is robust so we are able to monetise domestic gas to meet the energy needs of the country, and the subregion We are engaging prospective IPPs to offtake OCTP gas GSA will be signed with IPPs based on take or pay obligation Seeking back-to-back arrangement with IPPs for key terms of the GSA We are working with the World Bank to optimise PRG across the value chain GoG is working with the World Bank and other stakeholders to re-organise the power sector: Clean up the books of the state distribution company Improve efficiency Place them on sustainable path to being not a bottleneck to economic growth but an enabler 27

28 Conclusions African economies have shown resilience over the last 1½ decades Average growth rate increased from 2% in the s to above 5% between And the future remains bright So is the future of gas in Africa, and the world Power generation should be the top-priority for gas utilization in Africa As compared to oil, gas is cleaner, cheaper and better for the power plants The investment requirement for infrastructure is huge; about $300bn by some estimates Let s pool resources, let s not duplicate but share infrastructure E.g. We should not have 2 LNG import facilities in two small neighboring countries There are sub-regional frameworks to help with this sharing E.g. the West African Power Pool, the West African Gas Pipeline etc., and similar structures in the other sub-regions We have to rekindle the Pan-African spirit of our founding fathers, and we will light up Africa with African gas resources, and transform the lives of our people.

29 Conclusions Ghana has the national vision to use its oil and gas resources for the socio-economic transformation of the country Continuous cries for clean fuels augurs well for the future of natural gas We in Ghana are determined to monetize our gas discoveries including marginal ones to provide clear signals to investors The necessary reforms are being implemented We look forward to strong and serious partners that have the technology, the expertise, and the right culture to achieve our National goals

30 Thank You Contact Details Hon. Owuraku Deputy Minister of Energy

31 Backup Slides

32 Development - OCTP Deepwater development Recoverable integrated reserves oil are and estimated NAG at 173mmbbls of Oil, 1.07tcf NAG and 30mmbbls of condensate. FPSO John Agyekum Kufour arrived in Ghana on 10th April First Oil production commenced on 20th May, 2017 Oil Production from all fields for May ,495bbls 21

33 Onshore Receiving Facilities (ORF) 22

34 Production JUBILEE FIELD First oil achieved in December Recoverable oil reserves are estimated at 585mmbbls Reconciled total oil and gas production from Jan-May, 2017 is 12,423,555bbls and 16,166.39MMSCF respectively. Average production of 82,457bbls(Jan-May 2017). TEN FIELD First oil achieved in August, 2016 Recoverable oil reserves are estimated at 245mmbbls Reconciled total oil and gas production from Jan-May, 2017 is 7,685,6046bbls and 9,882.54MMSCF respectively. Average production of 50,898.04bbls (Jan-May 2017) 23

35 Ghana s Proven Oil and Gas Production Profile Oil Production Profile Gas Production Profile Jubilee MBbl/d TEN MBbl/d ENI OCTP MBbl/d Jubilee MMcfd TEN MMcfd ENI OCTP MMcfd *This excludes GJFFDP and MTA resources 26

36 Some Statistics Africa as at 2015 Africa has Oil reserves billion barrels; 7.6% of the world s proven reserves; Gas reserves Tcf (or 85.7 billion BoE); 7.5% of the world s proven reserves 11 of the top 20 discoveries in 2015 Algeria has the 3 rd shale gas potential globally 707 Tcf, billion BoE More than 90% of the continent s natural gas production being driven by Nigeria, Libya, Algeria and Egypt Libya has the 5 th shale oil potential globally; 26 billion barrels Shale gas potential - South Africa, 8 th globally with 390 Tcf, 76.2 billion BoE There were several sales of blocks in 2016, including in Angola, Egypt, Equatorial Guinea, Republic of Congo, Ghana etc. Between them: Nigeria, Algeria, Angola, Egypt and Equatorial Guinea exported about 49 Bcm of LNG in 2015 (14.4% of world exports) Africa has 24.2% of world LNG nominal capacity (102.9 Bcm) Africa s natural gas pipeline exports were 36.1 Bcm; 5.1% of the world s exports in 2015 Between them Nigeria, Egypt, Libya, Angola and Mozambique expect an estimated US$40 billion per annum in industry investment over the next 5 years 36