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Time with David Transcript

Jack Derickson, Managing Director, The West Africa Gas Pipeline Company

Edited transcript

David’s Introduction: My guest is from the West Africa Gas Pipeline Company Limited (WAPCo). As you know, this project began in the 1980s; I recall doing interviews many years ago as a journalist on this fantastic project that was going to provide cheap gas from Nigeria to a number of countries along the West African coast, including Ghana. Gas that was being flared in Nigeria was going to be harnessed to become a source of energy for all of us. This project has taken a long time in coming; it’s late in many respects, it’s over budget; and one wonders whether it is still relevant. We’ll be speaking to the Managing Director of the Company, Jack Derickson, to get a feel of what in his view are the benefits of the project now that it is here.

David: Jack, Thank you for coming. You have been Managing Director of WAPCo for the last four years. Are you familiar with Africa?

Jack Derickson: Yes, I started work in the Nigerian and Angolan business units for Chevron back in 2001, so I’ve been around Africa for a while.

David: Is Chevron the principal shareholder in the West Africa Gas Pipeline project?

Jack Derickson: Yes, there are six shareholders altogether, and Chevron is the largest, with about 36% stake.

David: And Ghana is a shareholder through the Volta River Authority (VRA). Is it a significant share?

Jack Derickson: Ghana has about 16.3%, and yes, I would say that is significant.

David: This project has been around for a very long time; so recently when I discovered that there was gas from Nigeria, I was skeptical, but you are saying there is really gas flowing now from Nigeria to Ghana.

Jack Derickson: Yes, these are very exciting times for the West African Gas Pipeline Company. We’ve been flowing steadily for the last five weeks, and this is the first phase of our operations. The flow rate now is about 30 million cubic feet a day which is used to generate some 110 megawatts of electricity from the Takoradi Thermal Power Plant.

David: Is that significant?

Jack Derickson:  Yes it is, although that is still a fraction of the flow that we’ll be getting to eventually. This is the first phase; we call it the Free-Flow or Interim Gas Sales. Currently, we are just flowing based on the pressure in the Nigerian system. We were flowing a year ago, but that was interrupted due to supply disruptions down in the Niger Delta. The other exciting thing is the second phase, which is getting all the facilities built, including the Compressor Station in Nigeria. Actually, that project is coming to an end, and we’ll be commissioning in the next couple of months. Once that is done, we’ll have the capacity to pump more gas into Ghana.

David: Who buys your gas?

Jack Derickson:  The foundation customers for the whole project are VRA; they’ll need about 120 million cubic feet of gas a day. The other two customers are in Togo and Benin; their power company, CEB (Communaute Electrique du Benin), will be requiring about 5.5 million cubic feet a day, for each of the two countries.

David: Do you think Ghana’s energy needs are going to be met significantly better as a result of this?

Jack Derickson:  Yes, the main thing about this project is that it is a fuel switching project. Right now, the thermal power plants are running on crude oil, which is very expensive. On the other hand, natural gas is less expensive; it’s about 40% to 50% of the fuel costs compared to crude, depending on the price of crude.

David: So what we are hoping to do in Ghana is to rely on gas rather than crude oil? Can we rely on this source?

Jack Derickson: Well, a project like this requires three things: supply, transportation (that’s us) and then customers. However, one of the main risks is supply. As it stands now, there is only one source of supply. The gas is taken from Nigeria in the Niger Delta region, where it’s produced.  It is a volatile area and we’ve been interrupted a couple of times over the last number of years.

David: Is that why it is late?

Jack Derickson: That’s part of the reason delivery of the flow is late.

David: But the pipeline itself was delayed too.

Jack Derickson:  Yes, the pipeline itself was in place about two years ago. It had been delayed for a number of reasons, but really, the primary one had to do with contractor issues.  We had some good performing contractors and some poorly performing ones. One of them is really the primary cause of our issues. You’ve heard this story before, work stops and they demand more money, you re-negotiate; then work stops again; and so finally that contractor had to be terminated. So we brought in someone else to pickup the pieces and finish it. That was a significant blow to us. It’s been a rough road over the last few years. There have been a lot of ups and downs.  Things are much better now, and it’s an exciting time for our company.

David: When the idea of the West African Gas Pipeline was conceived, Ghana had not discovered its gas deposits, so I’m curious, how does that fit into your plans now?

Jack Derickson:  You are absolutely right about that. At the time, there was a view that there was all this gas flaring in Nigeria and there was no market for it, and so it was decided that the gas was going to be captured and brought this way.  Over time, the production hasn’t really increased much in Nigeria, yet the demand has increased significantly in the whole sub-region. When oil and gas was discovered here in Ghana, some people saw that as a threat to the market for gas. But really, we look at it as more of an opportunity. There is huge demand which will continue to grow in the coming years. Currently, the input source is from the Niger Delta but in the future, I can see a whole pipeline infrastructure along the coast, and we will likely be tied into whatever gets built offshore in Ghana’s Western Region.  For instance, if the Jubilee partners are interested in getting gas to Tema, there would be an arrangement to use our pipelines.

David: Ghana now should be taking gas from the Jubilee field discovery and not from Nigeria. It must be cheaper to take gas from the Western Region, and distribute locally than to wait for Nigeria to send gas to us?

Jack Derickson:  Well, we are in place now and we are flowing gas. It’s going to take a couple of years before there is gas flowing from Jubilee. Also it’s not going to be cheap or free. This is because it’s going to cost money to install the pipeline infrastructure, the gas plant etc, so the gas price to customers will be structured to recover that cost.

David: So you mean there is no need, and we might as well use your pipeline?

Jack Derickson: Sure. I think it will be very competitive, but that’s the way gas pricing typically is. At least in our case, it’s very regulated, in order to pay back the cost of doing the installation.

David: But you agree with me that ultimately, the discovery of gas in the Western Region has to be factored into the equation for a company like yours?

Jack Derickson:  It does, but really, what I’m saying is that there is plenty of demand in the sub-region to absorb both Jubilee gas and what we can ultimately put out from the West African Gas Pipeline.

David: Nigeria has grown significantly over the last 20 years and must be using up more gas. Is it possible that they can absorb all of the gas themselves, and so there will be no supply for anybody else?

Jack Derickson:  Actually, that is the sort of situation we are in now, because production hasn’t grown. But it is proven that there is a lot of gas in the ground in Nigeria. But again, it takes a lot of money to develop the fields, build pipeline infrastructure and gather the gas. That work is going on right now. There is a big gas master plan in Nigeria, with a vision to significantly grow gas volumes over the coming years.

David: I have some questions to you not at the MD of the pipeline company but as a professional in the industry. There are a lot of nice plans about gas and energy. Do you think that in the West African sub- region, we’re doing the right things to ensure that gas will be available and at completive prices? Are things going to get better?

Jack Derickson:  Yes, I think so. Like I said, it’s a less expensive fuel. We have our infrastructure project in place, and I think it’s going to continue to grow as the offshore fields continue to develop. It is a less expensive fuel for generating power.

David: Are there big risks like explosions that we must be wary of?

Jack Derickson:  There are risks in anything, and gas pipelines have their own risks. Our systems are built to very high standards. The onshore sections of our lines in Ghana are very short – they are less than a kilometer each – and so our risks, especially here in Ghana, are the offshore risks. We spend a lot of effort working with the port authorities, the navy, the fishing communities, and the shipping industry to create awareness of the pipelines.

David: So that people avoid accidents? Are the pipes not in deepwater?

Jack Derickson:  The pipes are laid on the ocean floor. We have one long pipe with three laterals linking Cotonou, Lome and Tema. Here in Ghana, the pipe is a 20-inch diameter, with about two to three-inch cement coating around it, and then the lateral link to Tema is an 18 inch diameter. That coating helps to keep the pipe on the ocean floor, and protects it from some things such as fishing trawlers and boats among others.  The
West African Gas Pipeline Authority (WAGPA), which is our regulator, in conjunction with the West African Gas Pipeline Company, have put in place some damage protection programmes, which include a one-mile pipeline protection zone. This restricts anchoring, and trawler and boat fishing activities within that one mile protection zone. So when you talk about endangering the pipeline, it is danger from third party interventions.

David: Do fishermen pose problems?

Jack Derickson:  It depends on which kind; the guys on the canoes are not a problem, unless they are throwing dynamite into the ocean. But the big trawling boats are the problem. This is why we spend so much money on awareness creation. In 2007, just as we were finishing the laying of the pipe, it was torn offshore Benin. We never knew who did it, but it was a large ship which had its anchor dragging across it. We were getting ready to pressure-test it, and all of a sudden, there was no pressure.  So we had to figure out where the problem was, in order to solve it. This delayed the offshore campaign by seven to eight months, and it was expensive as well. This is one of our setbacks along the way, and that also triggered a much bigger effort in this pipeline exclusion zone.

David: Was this just an ambitious project?

Jack Derickson:  There were a lot of risks; which were of huge concern to the shareholders – whether to invest in this or not. In the end, they did take the risk, but everyone knew it was very risky to begin with, and we are seeing some of those risks.

David: The other thing is that in the end it took as long as it did and I’m talking about expectation management. I have to say there was a time when it seemed like the West African Gas Pipeline project would solve our energy problems in a couple of years. Now here we are, and I don’t know whether it’s making that big impact. Is the impact going to grow, hopefully?

Jack Derickson:  Yes it will. And again, these fuel savings are huge and significant. We’re talking millions of dollars a month. You saw what happened to the price of fuel a couple of years ago; that was a real blow to VRA and everyone. They had to keep the lights on, but they were spending more than they were bringing in. It was a very difficult a situation. I remember all the pressure about when the gas was coming. Meanwhile, we were having contractors walking off; so it’s really been a rough road and it took a lot of perseverance and hard work by our people to keep it going.

David: Do you keep track of Ghana’s offshore activities? In your view, how is it going?

Jack Derickson:  You have to commend those companies who took the risk to drill those kinds of wells. Some of the big majors like Chevron often don’t take those big risks. So big risks bring big rewards. This is a very impressive quick turnaround in getting a production facility out there. That production helps fund the rest of the development.

David: What about value addition? In this case, I mean refining the product. Is that important to do?

Jack Derickson:  Yes it is. It helps create jobs and other export products, and that’s another good thing about our gas. Once our gas is onshore and we have bigger volumes, people are going to start building manufacturing plants that need gas and heat, thereby creating employment opportunities, which lead to development as well.

David: So really, there is a lot of potential for Ghana just as a result of the activities offshore. How does this compare to some of the other places you’ve been to, like Nigeria and Angola?

Jack Derickson:  Yes; it’s a very exciting time for Ghana. Ghana’s industry is still in its infancy as far as oil discovery is concerned, whereas there are huge developments in Angola and Nigeria; so those are much more mature development fields.

David: In your estimation as a professional in this business, would you say the Gulf of Guinea is a serious zone in terms of hydrocarbon deposits?

Jack Derickson:  I would say it is. It is very rich in very high quality crude and gas.

David: Are we getting the business partnerships right?

Jack Derickson:  The industry is in its infancy, and again I’m not that close to the management of Jubilee, GNPC and so on. But I think they’re doing the right thing by considering how other countries are doing it. I understand they are adopting the Trinidad and Tobago model – Trinidad and Tobago has established a good, self-sufficient business model – so it’s good Ghana is learning from them. In the infancy stage, you really need a lot of help from the experienced countries and companies around the world, rather than assume you have enough capacity to start right out. It seems like things are on the right track.

David: Jack, thanks for coming

David’s closing remarks: I’ve been speaking with the Managing Director of the West Africa Gas Pipeline Company, Jack Derickson. The construction of the West Africa Gas Pipeline has been completed and much as I speak about disbelieving it, it appears we now have a cheaper source of energy available. Over the next few years, it’s going to be critical what happens in that regard. Join us again

First Broadcast 15th May 2010, TV3 Ghana

 


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