Determinants of natural gas demand in Ghana

• Author: Ishmael Ackah
• Published date: 01 September 2014
• DOI: http://doi.org/10.1111/opec.12026
• Date: 01 September 2014

Determinants of natural gas demand

in Ghana

Ishmael Ackah

PhD Student, Department of Economics, Portsmouth Business School, University of Portsmouth, Winston

Churchill Avenue PO1 2UP, UK. Email: ackish85@yahoo.com

Abstract

The study investigates the effect of economic and non-economic factors on natural gas demand in

Ghana at the aggregate and disaggregates levels. The structural time series model is employedas it

has the ability of capturing exogenous non-economic factors. The findings suggest that both eco-

nomic and non-economic factors influence natural gas demand. It further reveal that differentsectors

respond differently to these factors. The study recommends that policies such as natural gas price

subsidies should be customised for different sectors to obtain optimal results.

1. Background

Due to supply security and environmental concerns, global natural gas demand is increas-

ing at a rate above average primary energy demand (Ruester and Neumann, 2008). The

increase in global natural gas consumption has been attributed to many factors. Firstly, gas

is cleaner than coal to burn and cheaper than petroleum. For instance, natural gas pos-

sesses some attractive characteristics like the limited carbon emissions, operational flexi-

bility and efficiency (Akkurt et al., 2010). Moreover, natural gas is the cleanest and most

hydrogen-rich of all the hydrocarbon energy sources, and it has high energy conversion

efficiencies for powergeneration (Economides and Wood, 2009).

Figure 1 shows that, global consumption of natural gas has increased from 1729

million tons of oil equivalent to 2653 million tons of oil equivalent(BP, 2010).

The global demand for natural gas is in the process of dramatic changes, such as the

globalisation of the gas market (Huntington, 2009), rising shares of LNG trade and spot

contracts (IEA, 2008) and the increase in the in the prospect of unconventional gas supply.

The increase in the demand may be drivenby many other factors. In Bangladesh, the Gov-

ernment is encouraging the use of compressed natural gas as a transportation fuel (Wadud

et al., 2011). In other cases, the demand has been due to advances in technology such as

the use of gas fired combined cycle gas turbine powerplants for electricity generation.

Natural gas consumption has grown substantially in recent years inAfrica, stimulated

by increased economic activity, large investmentsin new infrastructure and domestic price

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subsidies (Eggoh et al., 2011). Ghana uses natural gas mainly as a fuel for cooking, trans-

port and industry (Kemausuor et al., 2011). Ghana’s forest cover has dwindled from 8.13

million hectares at the beginning of the last century to 1.6 million hectares today (Ghana

Energy Commission, 2010). According to the UN Food and Agriculture Organization

2009, the rate of deforestation in Ghana is 3 per cent per year. In order to solve the defor-

estation problem, the government of Ghana launched a National LPG programme in 1990

to encourage the use of LPG as an alternative to charcoal and firewood for cooking to

reduce deforestation and help to achieve the climate change goal of the Government

(UNDP, 2004).The policy among other things supported natural gas consumption through

price subsidies that encouraged households to buy.Again, the opening of the natural gas

and cylinder distribution and retail markets to the private sector helped industry and

households in rural areas especially to have access to gas. Finally, the use of gas in power

production especially by the Asogli power plant boosted natural gas consumption. This

policy led to an exponential increase in the demand for natural gas. Figure 2 shows that,

the total final consumption of natural gas in Ghana was 6 Ktoe in 1989. However, the final

natural gas consumption in 2009 was 221 Ktoe. This has been driven by both residential

demand and industry demand. For instance, natural gas consumption in Ghana’s industry

sector has increased by 52.6 per cent per annum from 1989 to 2009. Figure 2 shows the

natural gas demand at the aggregate level, residential sector and the industrial sector of

Ghana between 1989 and 2009.

For regions such as sub-Saharan Africa, the investments necessary to produce the

required increase in all forms of commercial energy are major compared with traditional

Figure 1 Global natural gas consumption.

Source: BP,2010

Determinants of natural gas demand in Ghana 273

OPEC Energy Review September 2014© 2014 Organization of the Petroleum Exporting Countries