Shell signs deferral amendment of LNG delivery agreement with GNPC and Tema LNG Terminal Company

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Various parties to the Tema LNG Project have agreed amendment to the Commercial Agreements, which effectively frees the national oil agreement from its earlier commitment to be paying for regasified liquefied natural gas now, even at volumes significantly reduced in 2019.

The latest development which will see the deferral of delivery of LNG Cargoes affords Ghana sufficient time to build the required infrastructure that unlocks the high local demand for LNG, whilst developing the wider regional downstream market in West Africa. Tema LNG is currently the only multi-commercial LNG terminal in Sub-Saharan Africa, with the potential to serve particular industries in West Africa.

But, GNPC negotiated the original agreement in a way that the $450 million facility will eventually pass on to the GNPC at the end of the GSA.

The parties to this groundbreaking agreement are the Ghana National Petroleum Corporation (GNPC) as the “Buyer”; Shell Energy Ghana Ltd (Shell) as the “Seller”; and Tema LNG Terminal Company (TLTC) as the “Operator”. The amendment to the Agreements is said to have been necessitated by a proposal by Shell to defer the shipment of LNG. Experts believe the proposal is to manage the global supply-demand dynamics of LNG precipitated by the Russian – Ukraine war.

By working collaboratively with Shell, GNPC has executed an amendment that ensures that there is no fiscal burden placed on the Government of Ghana by the Project in the near term while maintaining the option to receive liquefied natural gas (LNG) in the medium to long term, to bring significant advantage to the country and the region’s growing energy needs.

In a recent brief on the Tema LNG Terminal case study, a team of CSOs including IMANI, ACEP and Tax Justice Network Africa among others alleged that despite multiple postponements and much PR, the Tema LNG terminal has failed to supply gas for use in Ghana. The brief says the consortium continues to insist however that the terminal is “operational” and that the take-or-pay arrangement remains valid. The CSOs say that unless the project is terminated, liabilities of up to $1.5 billion, could still manifest to the detriment of Ghana. This is being denied by GNPC.

According to the CSOs, the Tema LNG project poses a major risk to the already strained finances of the GNPC. Some calculations by ACEP and IMANI suggest that the GNPC could be paying between $790 million and $1. 357 billion a year (based on average 2022 Brent crude prices) for gas the country doesn’t need. These fears are, however, not reflected in the structure of the amended contract.

Even though it is free of any such obligation, for now, GNPC stands to benefit from a portion of the fees in the regional business from Tema LNG. It has, therefore, expressed its willingness to continue working with the Operator, in the intervening period, to deliver solutions for the supply of LNG to customers in the region, to generate additional revenues to the Corporation.

It says it continues to see the introduction of LNG into the gas supply mix as an important step to shoring up energy security and meeting Ghana’s growing demand for energy and as a way to lead West Africa in the drive towards a transition to cleaner fuels.

A senior source in the national oil company has further explained the circumstances that led to the GNPC and the other parties involved to amend the project agreement. According to the source Shell proposed to defer the supply of LNG for regasification to a period of about two years after which it believes the country’s current precarious situation would have been normalized.

“The proposal for the amendment came from Shell that we look at deferring the supply for some period till things normalize then we resume activities. So it’s a mutual agreement cleverly executed, which we stand to benefit from,” the source stated.

The source further explained that there is an option for further deferral periods to be explored. It hinted that within the deferral period, the Tema LNG facility can still take advantage of any business opportunities outside Ghana. He said the project which is almost complete is not owned by the GNPC, as the terminal use agreement (TUA) that exists is between the Tema terminal facility and Shell, while the GNPC has a gas sales agreement with Shell.

The source criticized the CSOs for their lack of proper understanding of the transactions and further explained that the terminal becomes an asset of Ghana at the end of the contract period. Basically, Ghana takes over the terminal. ‘‘We don’t have a TUA per se, the agreement we have is to the extent that Ghana takes over the terminal and the terminal company requires the permission of GNPC ( during contract period) for other third-party businesses that the terminal wants to do,” the source said.

It maintained the commercial arrangement to buy gas is between the GNPC and Shell with that serving as the basis for the construction of the Tema LNG facility. It says within the deferral period and afterward, GNPC will not prevent the Terminal from going ahead with other business transactions that will inure to its benefit as that will not amount to any breach of law or contract, but allowing the investors to recoup their investments currently estimated at nearly half a billion US dollars. The project is fully private-sector funded.

The national oil company says the terminal infrastructure provides a strategically important asset for energy security both locally and within the west Africa sub-region for the benefit of all stakeholders.