Energy experts here Tuesday urged the Ghanaian government to conduct due diligence before deciding to hedge the country’s crude oil, to forestall a situation where the country could lose huge sums of its oil revenue.

Petroleum hedgingThe country’s Public Interest and Accountability Committee (PIAC), the body charged with monitoring the proper utilization of oil revenue, in its 2015 Annual and 2016 Semi-Annual Reports, urged the Ghana government to hedge the country’s crude oil to maximize profit.

Hedging is the process in which when there is an anticipation of a rise in the price of a commodity in a future, the buyer places a contract to buy the commodity at a fixed price from the seller.

“In order to mitigate the impacts of the volatility of crude oil prices on the world market and following the successful hedging programs being implemented by other Jubilee partners, the government should consider resuming its hedging program on crude oil exports,” the report said.

But speaking to Xinhua, Dr. John Gatsi, Head of Department at the Finance & School of Business at the University of Cape Coast in the Central Region (Province), urged the government to exercise circumspection if it is considering hedging.

“I think hedging indirectly is part of the Petroleum Revenue Management Act (PRMA), Act 815. But this is an area that we ought to be very careful when we go into it. If we are not very careful and we rush into hedging for hedging’s sake, that can bring more risk to the economy.” Gatsi said.

The west African country lost significant amount of revenue in 2015 and 2016 largely because of crude oil price collapse at the world market.

Gatsi said the country’s Jubilee Field International Oil Companies (IOCs) partners that hedged their crude and made gains did not do so in the midst of crisis.

“There are positive aspects of hedging and there are negative aspects as well, and that should be the guiding principle. Those IOCs that actually benefited from hedging, they were not doing the hedging in the midst of the crisis.”

Chairman of the Civil Society Platform on Oil and Gas (CSPOG) and member of PIAC, Dr. Steve Manteaw, at a workshop on the analysis of the PIAC 2016 Semi-Annual Report, said it is dangerous for a developing economy like Ghana to hedge its crude oil at the international market.

“For a country developing country and especially one that has not developed other derivatives, it must desist from hedging.”

PIAC Vice Chair Kwame Jantuah also told Xinhua the IOCs at the Jubilee Field hedged and made profit in the end and urged for proper forecasting to determine the suitability of hedging or otherwise.

“The volatility of the oil price will determine that and we should be able to forecast where the oil prices are going to be within certain duration of time. It has worked for the IOCs that hedged because it is a chicken and egg issue. If you hedge and prices shoot up to 100 dollars a barrel, then your hedging will stop you from gaining from that increased margin. However, if you don’t hedge and prices drop as it dropped to 30 dollars a barrel, you also lose, so we need to be able to forecast and see where the oil price is likely to be within the next six months or eight months”, Jantuah said.

Meanwhile, the Institute for Fiscal Studies (IFS), a think tank, recently reiterated the call by PIAC on government to hedge the country’s crude oil to protect the west African country from shocks in the global price of crude.

The institute says the country risks missing out on its seven percent growth target for 2017 should the prevailing conditions on the global oil market persist.

IFS Executive Director Professor Newman Kusi told the media: “We are not going to achieve the target. Clearly projections are made on two things — the coming onboard of the Sankofa and TEN oil projects. If anything happens and the productions from the two fields do not materialize, we are not going to get the growth target.”

Ghana hedged one million barrels of crude oil at 82.50 U.S. Dollars per barrel for a period of six months in November 2010 with prices at that time hovering around 75 dollars but after four months it surged past 115 dollars. Between May to December 2011, the country again hedged the sale of its oil at 107 dollars per barrel when the price of the commodity was 119.20 dollars per barrel. Enditem

Source: Francis Tandoh, Xinhua/NewsGhana.com.gh

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