Implication of Oil and Gas Investment in Ghana

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1. O INTRODUCTION

The purpose of this chapter is to give an introduction to the motive for selecting the implications and importance of oil and gas investment as the main subject of this project work. The background and history of this project are followed by the subject, providing an introduction to the main theme of this work. The problems for discussion are further presented in order to illustrate the main problems of this study. This chapter was completed by illustrating the structure of this study by presenting a model giving the reader an introduction to the main stages of this project.

1.1BACKGROUND OF THE STUDY

It is undeniable that oil, christened “black gold”, fuels the global economy. Oil converted into gas, petrol and diesel fuels our various modes of transportation that allows for the movement of goods and people around the globe. Due to the enormous financial resources that can accrue from this industry, the discovery of oil in any location, particularly developing countries, is greeted with great optimism. Such was the case in the golden jubilee year of Ghana’s independence when oil was discovered in commercial quantities in the Western Region of Ghana, the same region noted historically for rubber, forestry and minerals of various kinds. In the golden jubilee fields alone, it is estimated that by 2011, oil production per day would hit 120,000 barrels and the revenue from the oil and gas exploration is estimated to hit an accumulated value of US$20 billion between 2012 and 2030 (Gary 2009).

Ghana’s president at the time, J. A. Kufuor noted with great optimism: ‘oil is money and we need money to do the schools, the roads, the hospitals.Even without oil we are doing so well already. Now, with oil as a shot in the arm, we’re going to fly’ (Gary 2009:5). The international community also shares in the optimism generated by the discovery and exploration of oil in developing nations. A World Development Report of the United Nations Conference on Trade and Development (UNCTAD) (2007:95) for example states that: Extractive activities [including oil exploration] can also have profound social and political impacts. They can have a positive effect on development by creating jobs, encouraging business and providing vital infrastructure for remote communities such as roads, electricity, education and health.

However, the presence of substantial amounts of oil and gas reserves has been identified by many authors as a potentially mixed blessing for oil producing countries (World Bank 2006).

Hence the discovery of oil creates a sense of hope and expectation that the revenue would lead to the development of local communities and countries as a whole.

1.2 STATEMENT OF THE PROBLEM
The subject chosen for this project is “implications and importance of oil and gas investment”. The main problems that have resulted in the need to research into this topic are;

1. Huge uncertainty on potential carbon legislative frameworks, timing and exposure. 2. Scarce availability of skilled labour and shortages of sector specific machinery and equipment. 3. Changes in tax and regulatory regimes and risk of nationalization makes returns on new investment in the oil sector more uncertain. 4. Costs and inflation: The level of investment and operating costs are other factors representing uncertainty in investing in oil and gas. High oil price levels results in high activity in the industry. High demand for skilled labour and petroleum related services drives up the cost level in the industry. The level of costs influences the profitability of projects. 5. Technology: As time goes by, exploration will discover extractable petroleum reserves in new and old areas. Existing and future technology makes it possible to undertake projects in unknown areas with more difficult conditions. Examples include petroleum production in arctic areas, at deeper sea levels and more complex development concepts. Technology...
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