Building a sustainable and competitive oil & gas company in Ghana
Ghana National Petroleum Corporation: Building a sustainable and competitive oil & gas exploration company in a new market while confronting the challenges from worsening climate change.
I was born and raised in Ghana, a poor developing country in West Africa. As a consequence, thinking about climate change, its impact on the environment and one’s day-to-day life can sometimes feel like a luxury. This is because you are confronted with extreme poverty and other seemingly more urgent and short-term problems. However, I believe thinking about the impact of climate change on daily life in Ghana is not only important, but has perhaps greater urgency as the country continues to develop as an oil and gas producer (and hopefully exporter).
The Ghana National Petroleum Corporation (GNPC) is Ghana’s National Oil Company and was brought into existence in 1983 by constitutional law. The company’s mission is to lead the sustainable exploration, development, production and disposal of the petroleum resources of Ghana, by leveraging the right mix of domestic and foreign investments in partnership with the people of Ghana[1]. While the company has been in existence for over two decades, it was not until nine years ago when significant deposits of oil and gas were discovered that the spirt of the company’s mission developed a sense of urgency. Currently GNPC partners with foreign oil & gas companies in oil & gas exploration. However, its overarching strategic goal is to “become a stand-alone operator by 2019 and a world-class operator by 2027.” In order to achieve this goal, the company needs to ensure that its operations can conform and adapt to the realities of a world that continues to be impacted by climate change.
On sustainable exploration
What does sustainable exploration mean for oil and gas exploration? To me that means building an oil & gas industry that is not only compliant with current climate change policies but also considers the future of climate change and associated regulation on its daily operations.
Risks that oil & gas companies face
I view that the most significant risks facing companies that are involved with extractives such as oil, gas, mining, etc. include (1) stricter regulatory limits on air emissions and water discharges, (2) stranded assets if strong carbon constraints or costs are imposed and (3) reputational damage for companies seen as major contributors to climate change or major water users in water-scarce areas[2]. The risk of stranded assets is particularly pressing for GNPC given that one bank estimated that 40% to 60% of the current market value of leading oil and gas companies may be at risk given the value of carbon trapped on company’s balance sheet in terms of energy reserves[3]. Given the relative newness of Ghana’s oil & gas fields, I view that GNPC is in an advantageous position to modify its operations to ensure that the company is nimble and can adapt to a world that is increasingly affected by climate change.
What can GNPC do to mitigate some of these risks?
Greater focus on natural gas exploration: Given that natural gas is the least carbon-intensive fossil fuel, climate-related policies may create opportunities for natural gas consumption. According to the U.S. Energy Information Administration, global consumption of natural gas is expected to grow faster than global consumption of liquid fuels. Between 2012 and 2040, world consumption of natural gas is forecasted to grow 1.9% vs. 1.0% for liquid fuels. For African specifically, consumption of natural gas is forecasted to grow 3.3% vs. 2.4% for liquid fuels[4]. It is unclear to me the extent to which GNPC can direct its operations (and those of foreign partners) to focus more on natural gas exploration. However, given the trends in climate change and global consumption pattern, it seems imperative to me that this be a core mandate.
Focus on empowering communities and building local talent and content: The extent to which oil & gas industries support or at least do not undermine local communities’ resilience to climate impacts may affect their reputation and social license to operate[5]. One effective way GNPC is working to empower local talent and content is through its GNPC Oil & Gas Learning Foundation (OGLF). The OGLF is an autonomous institution set up to ensure the training of citizens of Ghana and the development of national capabilities in all aspects of petroleum operations. The OGLF does this by facilitating scholarship awards and grants to support individuals and Educational and Training institutions, to build national capacity in oil and gas sciences, policy, management and operations. One may argue that as a government controlled company the GNPC need not worry as much about reputation and public perception affecting its ability to operate. However, GNPC recognizes the need to ensure that Ghanaians have the knowledge and skills that will drive innovation around ways to make GNPC and Ghana’s oil & gas industry sustainable for many years.
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[1] http://www.gnpcghana.com/overview.html
[2] United Nations Environmental Programme, GEO-5 for Business: Impacts of a Changing Environment on the Corporate Sector. http://web.unep.org/geo/sites/unep.org.geo/files/documents/geo5_for_business.pdf
[3] United Nations Environmental Programme, GEO-5 for Business: Impacts of a Changing Environment on the Corporate Sector. http://web.unep.org/geo/sites/unep.org.geo/files/documents/geo5_for_business.pdf
[4] U.S. Energy Information Administration
http://www.eia.gov/forecasts/aeo/data/browser/#/?id=6-IEO2016&cases=Reference&sourcekey=0
[5] United Nations Environmental Programme, GEO-5 for Business: Impacts of a Changing Environment on the Corporate Sector. http://web.unep.org/geo/sites/unep.org.geo/files/documents/geo5_for_business.pdf
Very interesting post! Oil & gas operators, such as GNPC, have a very difficult challenge ahead.
I like the suggestions, but would like to highlight one things: the shift to natural gas is not completely under the control of GNPC, but rather dictated by market conditions and supply/demand needs all around the globe. At this point in time, with depressed oil prices, it might look as a real “choice”. However, if oil prices rise again – and knowing the capitalist character of the business – GNPC will highly benefit from having oil producing assets in its portfolio. Instead of shifting to natural gas, GNPC could try to push sustainable practices to its suppliers (i.e., operators typically hold a very high bargaining power – as they have huge expenditures with suppliers), as an alternative to be more climate friendly and offset its own impact.
This is a good read. It is a very difficult dilemma – choosing between fast economic development to drag population out of poverty & hunger and producing more conservatively to be gentle on environment. I’ve been thinking about this question a lot. China apparently was the center of the criticism for being the largest carbon dioxide emitter in the world while being more reluctant to give up this economic imperative in exchange of better environment. Before I would say, making sure people are alive in terms of food and basic need access is more important. However, now seeing how a polluted environment in terms of air and water impacts every citizen’s life on a daily basis makes me change my mind. Un-sustainable economic development at the expense of the environment will come back and haunt us, and probably at an even greater expense. Now, sadly, when there is no more blue sky, we just realized that how little we can do to make the blue sky come back. Even if we stop the factory production, it does not help. Therefore, I completely agree with you that growth with a focus on sustainability and a harmonious relationship with environment is so important especially for large state-owned companies. These companies are not only responsible to spur economic growth for the whole country, but also to set itself as role model on how to maintain a sustainable future.
The O&G industry has proven to be a very effective way to generate growth in emerging markets. Many countries experienced the same dilemma as you and OliviaH pointed out. Global warming clashes with poverty in many developing countries. How could you decide what is more important between feeding people and long-term sustainability? Could someone say that we should focus on climate change when there are millions of people starving every day? I think we need involve every party (companies, government, individuals) and make sure that their interests are aligned. Ghana and any other developing market needs to generate a framework in which they can reduce poverty and set clear rules about what is socially and environmentally responsible.
Akyaa – great article. It is always interesting to see the slightly different perspective that emerging countries have towards an oil and gas discovery vs. those from developed countries (which OlivaH commented on above). A couple thoughts:
1) You’re probably familiar with “Dutch Disease” aka the “resource curse”. In short, its the tendency for countries with an overreliance on extractive mineral revenues to suffer from economic malaise or corruption. I know that Ghana did a lot upfront when this discovery was made to take steps to prevent this from occurring, often taking lessons from the Nigerian experience. While it’s too early to tell if they will be able to avoid this fate, here is an interesting article on some ideas for preventing “dutch disease”: https://barthoavenati.wordpress.com/2014/11/21/avoiding-the-dutch-disease-by-promoting-the-nonoil-sector-of-ghana/
2) Re: natural gas, this will be tricky to make work unless Ghanna can find a market for it. A big problem with gas vs. oil is that it is not easily or cheaply transported. Your options are either a domestic natural gas network with local demand or to export it as LNG, which is very capitally intensive. Again borrowing from the Nigerian experience, building out a domestic natural gas market will be no small feat. Likewise, the global supply for LNG has skyrocketed in recent years, leading to a glut and making the economics difficult for new LNG projects.