Oil revenue forecast sees massive cut as virus effect rages

Government has revised downwards its oil revenue forecast for 2020 to GH¢3.8bn from GH¢8.9bn, representing a 57.2 percent decrease, according to the mid-year budget review statement presented on Thursday.

This, Finance Minister Ken Ofori-Atta said, is as a result of the significant decline in crude oil prices on the international market.

The 2020 budget, presented last November, was based on an oil-price assumption of US$62.6 per barrel, and total petroleum revenue was projected at US$1.6bn (GH¢8.9bn).

However, crude oil prices have fallen significantly since the outbreak of the coronavirus disease and due to a price war between leading producers Russia and Saudi Arabia.

Mr. Ofori-Atta said the revised oil revenue forecast is based on an expected average crude oil price of US$39.1 per barrel, with revised projected receipts of US$660.5m (GH¢3.8bn).

Of the revised revenue projection, an amount of US$252.2m will be transferred to the Ghana National Petroleum Corporation (GNPC), a drop of 47.4 percent relative to the corporation’s initial allocation of US$479.8m.

The portion of oil revenue that directly funds the budget, known as the Annual Budget Funding Amount (ABFA), will also see a reduction of 62.5 percent, from US$761.5m to US$285.8m.

The Minister lamented the impact of the coronavirus crisis and depressed crude oil prices on investment in the oil sector, with exploratory projects valued at US$324m suspended due to the pandemic.

Additionally, Aker Energy, the Norwegian firm, has postponed its Pecan field development. This will impact the delivery of first oil from the Pecan project, thereby postponing projected revenues to government, the Minister said.

These postponements, according to him, could weaken the critical role of the oil and gas sector in propelling the economic growth of the country.

Energy think tank Institute of Energy Security (IES) has predicted that the oil market is not likely to see a V-shaped price recovery any time soon, despite the recent increases in oil prices.

“Any forecast of oil demand and price getting to the pre-COVID-19 levels before end-year could be distorted by some prevailing market happenings, posing as risks which cast shadows over the immediate recovery of the oil industry. These include a possible second wave of infections, increasing stock levels, delayed full economic recovery, return of shale production, political tension between the US and China, and the coming of the summer,” the IES told Business24 in an interview before the presentation of the mid-year budget review.