May 3 ,2021
Last Monday, Vice-President Bharrat Jagdeo convened a forum for the media on the questions that have arisen around plans for piping associated gas from the Liza-1 oil well to shore for conversion into fuel for electricity generation.
Attended by a team in charge of the planning for the project headed by the former Executive Director of NICIL, Winston Brassington, Mr Jagdeo attempted to temper the grave reservations that exist over the government’s handling of this matter.
Mr Jagdeo’s invitation to the media for discourse was most welcome as was the presidential press conference hosted by President Ali two days later. Both events speak to a willingness for openness at the highest levels of government, something that was woefully lacking in the statecraft of former President Granger.
While both Messrs Jagdeo and Brassington essayed answers to the questions that were put to them, genuine and serious doubts remain over the unguided haste with which the government is proceeding in developing a project that could have a price tag of as much as US$900m. Mr Jagdeo acknowledged that the government’s decision to move ahead was based on five studies that were commissioned under the government of its arch rival APNU+AFC.
The reliance on only these studies for the determination to proceed with this project is reckless. Given the disparate matters addressed in these studies and their varied authorship and provenance it would be most unwise to proceed in this manner. The least that could have been done was the commissioning of an expert review of the pre-existing studies to determine whether they do indeed provide a clear basis to proceed. We are unaware whether such a review was done.
Since the PPP/C had long been aware while in opposition of the prospects for the employment of associated gas, the best practice for it in August last year would have been to commission an acknowledged, unencumbered expert or experts to examine the financials and the attendant risks. Such a review could have been rapidly done given the burgeoning international interest in the oil and gas sector here. Such an examination would have provided a far better platform for making a decision on what would be a mega project in Guyanese terms with a significant burden on taxpayers.
It is clear from the statements over the last few months by Mr Jagdeo and others in the administration that the projected savings from electricity generated by the associated gas are substantial – around half the cost of the power generated by the Heavy Fuel Oil generators currently in use by the Guyana Power and Light. Such a significant reduction in power costs could have an enormously beneficial impact on the cost of living for householders and the operating and production expenses for businesses. It sounds all good and commonsensical, however, these are just figures on paper completely bereft of a rigorous consideration of the multitude of risks. Messrs Jagdeo and Brassington would concede that they are not experts in the area of petro-economics or petro-chemistry.
Aside from the decision to proceed, there are other problematics. The choice of Wales on the West Bank of the Demerara for the siting of the fuel plant appears to be another decision plucked from the air for political purposes. Wales was the site of the now-defunct sugar estate and is a major constituency of the governing party. On Monday Mr Jagdeo said that it was found to be suitable as it was less prone to flooding and had other positive attributes including the potential for expansion and low population density. Not a convincing case particularly in light of the disclosure on Friday by the former Minister of Public infrastructure, David Patterson that Wales was specifically ruled out in the consideration of possible locations and several reports including one for the Inter-American Development Bank favoured Woodlands, West Coast Berbice as the landing point for the pipeline. Woodlands was said to have been settled on after an extensive site selection process, led by a cross-agency team including representatives from the Guyana Energy Agency, Guyana Power and Light, the Ministry of Natural Resources, the Ministry of Business, the Ministry of Public Infrastructure, the Guyana Lands & Surveys Commission, and the Maritime Administration Department.
If Guyana aspires to diminish its carbon footprint, a largely methane-based power plant would go against the current trends. While cleaner burning, methane still adds to the carbon burden and leakage of the gas from the commercial process are an increasing problem globally.
During the Leaders Summit on Climate organised by US President Joe Biden last month, Reuters reported that the United States said its departments and agencies will seek to end international backing for carbon-intensive fossil fuel-based energy projects.
They will also work with other countries to promote the flow of capital toward “climate-aligned” investments and away from high-carbon investments.
Under the plan, the US International Development Finance Corporation – which visited here last year – pledged to reach net-zero emissions in its investments by 2040 and to increase “climate-focused investment” to 33% of its new allocations starting in fiscal year 2023.
While there are still loopholes in such international arrangements and commitments, the use of gas as a “bridge” fuel to energy renewables is increasingly frowned upon and this would likely have an impact on mobilising investment for the proposed gas to fuel plant.
There are other issues which have not been addressed. This government has entered negotiations with ExxonMobil in relation to the proposed gas plant. The last time a government embarked on negotiations with the US oil company the country was saddled with the reprehensible 2016 Production Sharing Agreement. It is not known whether the country’s negotiating prowess has been sufficiently heightened to risk such a lopsided engagement again.
At Monday’s forum, it was disclosed by Mr Brassington that the proposed gas pipeline to be constructed by ExxonMobil would be financed out of cost oil associated with the Liza-1 well. Up to 75% of oil produced from the Liza-1 well can be reclaimed as cost oil on an annual basis for the amortising of ExxonMobil’s investment here. However, the agreement has absolutely nothing to do with the gas to shore fuel plant and shouldn’t be amendable at the whim of Exxon and the Guyana Government. Any alteration of the financials of the 2016 agreement should afford the opportunity of much broader changes in areas such as royalties and ring-fencing.
Ultimately, the government has still not laid out a convincing case for proceeding with the gas to shore project when account has to be taken of the environmental and social impact assessment, the climate consequences and the need for transformation to renewables.