New Oil—and a Huge Challenge—for Ghana

The massive Jubilee field begins producing oil this week, but with revenue from the site come concerns about the risk of corruption and environmental compromise.

This story is part of a special series that explores energy issues. For more, visit The Great Energy Challenge.

Ghana starts producing oil Wednesday from a massive offshore field, while trying to avert the mistakes of other African nations.

The Jubilee field is expected to raise hundreds of millions of dollars a year in revenue for the government's coffers—money that could help this poor West African country improve people's lives by investing in education, health care, industry, and infrastructure.

(Related: National Geographic Guide to Ghana)

But Ghana faces an enormous challenge. While praised for its stability and democratic government, the country has a poor record of managing revenues transparently and protecting the environment.

Some even worry that greed could transform Ghana into a smaller-scale Nigeria, a nearby oil-rich country plagued by corruption, ethnic violence, and frequent spills—often tied to vandalism.

(Related: "Curse of the Black Gold")

Oil also has played a role in civil strife in other African countries rich in the resource, such as Angola, the Republic of Congo, and Sudan.

"We say we don't want to be like Nigeria," said Emmanuel Kuyole, Africa regional coordinator for Revenue Watch Institute, a nonprofit that promotes transparency of government expenditures. But Kuyole, who is based in Ghana, said the country must go beyond the rhetoric.

Kuyole and other civil society groups were dismayed that key legislation to manage the allocation of oil revenues was still being debated in Ghana's parliament last week. They also bristle that the government, which some believe already is burdened by debt added in the past three years, wants to use oil money as collateral for more loans. Ghana also is still working on a national environmental policy that will include a regulatory framework for the petroleum sector.

Measuring the Gains for Ghana

Ghana has produced oil in the past, but from reservoirs that were relatively small. The nation has never seen anything like Jubilee, estimated to contain up to 1 billion barrels of oil and 800 billion cubic feet of natural gas. It was discovered in 2007 about 35 miles (60 km) off the west coast of Ghana by a partnership that includes London-based Tullow Oil, Dallas-based Kosmos Energy, and Houston-based Anadarko Petroleum Corporation.

Ghana's national oil company has a 13.75 percent interest in Jubilee and will collect an additional royalty payment. Sabre Oil and Gas and EO Group Ghana have small stakes.

The oil and gas fields in the Gulf of Guinea are among a number of new finds being counted on to meet the world's energy demand. Since Jubilee, additional promising offshore fields have been discovered in Ghana.

But in recent months, government officials have tried to lower expectations that Ghanaians will benefit immediately from the new source of revenue.

Ghana's government anticipates that oil and gas will generate about $500 million in revenues in 2011—less than 3 percent of the forecasted gross domestic product.

Jubilee is expected to produce 120,000 barrels of oil a day within three to six months. In comparison, Nigeria produces more than 2 million barrels of oil a day.

"Jubilee alone . . . will not fire our economy," said Edward Bawa, communications officer for Ghana's Ministry of Energy.

Ghana is the second leading producer of cocoa in the world and is rich in minerals. The gold mining industry contributes about 5 percent of the country's GDP.

However, Steve Manteaw, campaigns coordinator for the Ghana-based Integrated Social Development Center, which promotes social and economic justice, said Ghana over the years has treated natural resource income as something to spend rather than invest, and has little to show for it.

Ghana ranked 130th out of 169 countries in the U.N. Development Program's annual Human Development Index, putting it in the category of "low human development." Annual per capita income is about $1,500.

Revenue Watch rated Ghana as having "scant revenue transparency" in its extractive industries. The group pointed to the ineffective use of royalty payments to reduce poverty in mining communities, weak legislative oversight, and conflicts of interest including legislators who sat on the boards of mining companies they oversaw.

Long Shadow of the BP Oil Spill

Memories also are fresh from BP's massive spill off the coast of Louisiana in the United States last spring.

(Related: National Geographic Gulf Oil Spill News and Pictures)

"Everything is colored by what happened in the Gulf of Mexico," said Dai Jones, president and general manager of Tullow Ghana Ltd, the operating partner of Jubilee.

Although Jones works for a British company, he is quick to point out that he was born in Ghana and sees great personal significance in the chance to play a role in oil development here. He said he thinks the project will benefit from the lessons learned. In particular, he cites the experience of Anadarko, a BP partner in the Gulf disaster.

(Related: "Is Another Deepwater Disaster Inevitable?")

Ghana's Environmental Protection Agency has a poor record regulating the mining industry and managing cyanide spills, according to Oxfam America. But Ghana Minister of Environment Science and Technology Sherry Ayittey assured reporters in September that the government is ready to meet the challenges.

She noted that Ghana had revised its oil spill response plan and developed guidelines as a step toward a regulatory framework. And she said Norway's Ministry of Environment had helped Ghana collect baseline information about the offshore environment.

"We will not cut corners," she said in a statement. "We shall caution when we have to and punish when we must in cases of environmental breaches" by oil companies.

Jones said Tullow is confident it can prevent a massive spill, although he acknowledges that "humans are the weakest link." Tullow experienced a minor spill of 37 liters of hydraulic oil during exploratory drilling operations unrelated to Jubilee operations last year, he said, and immediately reported it to the authorities.

According to local reports, Kosmos allegedly spilled 706 barrels of toxic substances in the past year while drilling nearby. But the company is fighting a fine of about $30 million, which it argues was levied unlawfully.

Ministry of Environment officials in Ghana declined comment about the case, and Kosmos didn't respond to requests for comment.

(Kosmos and the Ghana government have a tense relationship. The government blocked Kosmos from selling its stake in Jubilee to ExxonMobil Corporation for $4 billion; Kosmos then refused to sell to a Ghana-China National Offshore Oil Corporation joint venture for $5 billion.)

Reaction Within the Community

Many who live near the coast in western Ghana make their living fishing. Tullow has held public hearings and worked closely with tribal chiefs and fishermen to stem discontent. Jones said compensation hasn't been offered directly to fishermen, but nearly $8 million has been spent on such things as high school science laboratories and community centers, and health screening.

But Manteaw said many who attended the hearings didn't understand the technical jargon, and the hearings turned into "fanfares" touting the benefits oil would bring. Jones disagreed, saying the company has tried hard to manage expectations.

Western tribal chiefs have demanded a percentage of the oil revenue, but the Ministry of Energy's Bawa said that would open a "Pandora's Box" and that there are other ways to support affected communities. The oil project is employing hundreds of Ghanaians, and communities already are under pressure as more families move into the area.

In a country where only police are seen as more corrupt than politicians, some tribal chiefs have appointed themselves to be government watchdogs.

Jones recalled a meeting in which a group of tribal chiefs were informed that the state-owned Ghana National Petroleum Corporation would be responsible for offloading the government's share of oil.

A tribal chief only half-jokingly warned a GNPC official in these approximate words: "I am going to have a man on the beach in Takoradi watching the oil leave [western Ghana] and a man in Tema [the location of an oil refinery in east Ghana] watching it arrive. And if it doesn't, I'm going to come looking for you."

(Related: Learn about Ghana on National Geographic Kids)

(Related: Explore the music of Ghana at National Geographic World Music)

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