The silent effect of geopolitics and its impact on fuel prices in Ghana (Part I)

Malaika Dela Bakar, Senior Vice President, Energy and Infrastructure, Oil and Gas, Stanbic Bank Ghana

Geopolitics refers to the study of the effects of geography (both human and physical) on international politics and international relations. The term embodies the concept that strategic, geographic and historical factors influence political decisions and relations between states on a global scale.

Geopolitics often takes into account factors such as economic resources, territorial boundaries, demographic pressures, and cultural ties when analyzing the global political landscape. Geopolitics impacts every sphere of our lives and plays an important role on an ongoing basis.

In this article, I seek to dissect the impact of global geopolitical events on the price of refined petroleum products in Ghana and what this means for the future given the continued eruption of emerging events globally. Looking back a few years in our recent history, with the period from 2018 onwards being a good point of reference, it is worth noting that several significant geopolitical events have shaped and continue to shape the global landscape. Chief among these is the US-China trade war, which saw the US impose tariffs on billions of dollars worth of Chinese goods, resulting in tariffs in retaliation by China.

Although this is essentially a confrontation between two countries, the implications have been significant for global trade and economy. Other events such as Brexit, the COVID-19 pandemic, the war between Russia and Ukraine, COP26, which was a pivotal moment in climate change initiatives and agreements that saw several countries make global commitments to do their part to reduce the impact of climate change, and finally the recent upsurge in tensions between Israel and Gaza have all had a significant impact on global economies.

The war between Russia and Ukraine, which began in February 2022, has had a profound impact on global energy markets, including diesel prices in Europe, with a knock-on effect on markets like ours. As one of the world’s largest producers and exporters of crude oil and refined products, the reduction in Russia’s supply to Europe due to the conflict and the sanctions that followed created significant disruptions. Following Russia’s invasion of Ukraine, the European Union and other Western countries imposed strict sanctions on Russian energy exports, which included diesel and other crude products.

In retaliation, Russia reduced its supply to Europe, leading to a significant supply deficit, prompting European countries to source from other markets, thereby putting pressure on the product and increasing the price. Ukraine’s recent attacks on Russian refineries have also had a significant impact on oil prices.

Once again, the start of the war led to an almost immediate increase in the price of diesel across Europe. Throughout 2022 and into 2023 and even now, diesel prices remain volatile. The uncertainty surrounding the duration of the conflict has kept prices high and unpredictable.

All of this has resulted in a sort of market rebalancing, with European countries increasing their imports of diesel from the Middle East, Asia and even the United States to help fill the gap. It is important to note, however, that the logistics involved in securing and transporting these alternative supplies have increased costs, keeping diesel prices high. It can be argued that this has also influenced the price of the product locally.

The topic of oil and gas geopolitics cannot be addressed without including the impact of OPEC (Organization of the Petroleum Exporting Countries) and its allies (OPEC+) on this product. This group of member states plays a central role in shaping the global oil market, significantly influencing fuel prices worldwide and with considerable consequences on pump prices in countries such as Ghana.

Prominent examples include the 2020 price war between Saudi Arabia and Russia, two key members of OPEC+, which led to a significant drop in oil prices due to Russia’s refusal to cut production in response to falling demand due to COVID-19, angering Saudi Arabia which responded by flooding the market, causing prices to plummet. The price of Brent thus fell below $20 per barrel in April 2020. The negative impact of the fall in prices led OPEC and its allies to accept a reduction in production of 9.7 million barrels. per day to avoid the collapse of oil prices.

In 2021, following the ongoing global recovery from COVID-19, which has seen oil rebound and demand surge, OPEC and OPEC+ have faced pressure from the West to increase production in order to meet demand and stabilize prices. This led them to accept a gradual increase in production. An important moment took place in July 2021, when OPEC+ agreed to increase production by 400,000 barrels per day each month starting in August 2021. This decision was intended to help balance the market and prices, in a context of reopening economies and travel demands, which are fueling higher energy consumption.

As a net importer of refined petroleum products, it is safe to say that Ghana has over the years been affected by the effects of some of the events listed above.

Fig 1: Significant geopolitical events from 2018 to date

However, relating this to the price of refined petroleum products at the pump reveals interesting details that most citizens may not be aware of. For all Ghanaians who use petroleum products in one way or another, many of us have never really taken the time to understand where the products come from, how they enter the country and finally, if the price offered at the pump is fair. or has no indication of the developments that continue to unfold on the world stage. Despite our oil and gas fields currently in production, we remain heavily dependent on imported petroleum products to support our economy.

This is mainly because Ghana has about 18% of locally produced oil. This amount is insufficient to meet Ghana’s consumption of petroleum products, which exceeds 100,000 barrels per day.

Ghana’s current production averages about 130,000 barrels per day, spread across the three operating oil fields. This, coupled with the lack of efficient refining capacity, has led GNPC to export oil to get better value for money. Most of this comes through trade routes that very few of us know about.

Ghana’s main import routes for refined petroleum products mainly involve maritime transport, given its geographical location along the Gulf of Guinea, with some import sources being Rotterdam, Russia, the United States as well as the region of the United Arab Emirates.

Tema and Takoradi ports play a central role in these imports, with Tema having been developed into a major oil import and handling facility, which includes storage facilities, conventional buoy mooring (CBM) system (an offshore facility for offloading petroleum products), oil jetty, etc., and is a key distribution point for refined products in Ghana and beyond in parts of the South Africa sub-region. ‘West. Major international trading companies that deliver to Ghana include BP, Vitol and Glencore, to name a few. Other names include Sibet, Nest Wise and Edurc, which are emerging names in the import market.

Next time you are driving along Sakumono Beach at night, take a look at the horizon and I am sure you will notice many twinkling lights not too far away. These lights, a pretty sight to see, belong to the ships that bring products into the country from different places around the world.