Vice President Bharrat Jagdeo (sixth from left) and his team.
April 27 ,2021
The PPP/C government yesterday said that it used five pre-existing studies done under the APNU+AFC administration to determine that the gas-to-shore project was financially viable and would cut energy costs by at least half.
At a press engagement he facilitated yesterday at the Arthur Chung Conference Centre, Vice President Bharrat Jagdeo was bullish on the investment for the project and assured that the approximate US$810-900M project will produce power at around US 7 cents per KWH compared to US 14 cents that the Guyana Power and Light is producing at.
The government has come under increasing pressure to justify the decision in favour of the project and to locate it at Wales, West Bank Demerara.
Projected capital expenditure (CAPEX) estimates that the offshore pipes and riser will cost between US$570M to US$630M. The onshore pipeline is currently pegged to come in at between US$80M to $100M, while the Natural Gas Plant is expected to cost about US$120M. Infrastructure for the project would be US$40-50M; bringing the total to between US$810M—$900M
“The numbers on this project, a stand-alone project are so good it is a dream set situation,” he said.
The Wales location, Jagdeo said too, was chosen because the very studies determined its suitability against flooding and the high population density of other sites identified, in addition to its expansion potential.
“We examined the numbers of Crab Island versus Wales and Wales came out much more feasible, in terms of all the costs. The Crab Island area too is very low so the development costs would have been very high. One of the good things about Wales is that it is less prone to flooding…etcetera,” Jagdeo told the media forum.
“When that was settled, we had this issue about the price of gas. We expect the gas to come in not as a market price, not as the price that is part of the agreement (the 2016 Production Sharing Agreement with ExxonMobil and partners). The agreement sets out a pricing structure that it would have. The price reflected here, the three and a half [US cents], reflects both the price for the pipeline and the gas. In there is a lower than market price for the gas but the negotiations (with ExxonMobil) have not been completed and we are hoping to push that and close …to zero at least for the first big power plant,” he added.
At yesterday’s meeting, editors, publishers and reporters from the country’s major media houses were present and Jagdeo pointed out that he arranged it so that an “a lot of misconceptions” could be cleared up.
He was attended by a number of persons involved in the project including Head of the Gas to Shore Task Force Winston Brassington, Senior Petro-leum Coordinator Bobby Gossai, British Consultant and gas-to- shore veteran Simon Shaw, Head of the Petroleum Division of the GGMC Chris Lynch, Ministry of Natural Resources Geologist Martin Pertab, Chief Planning Officer of the CH&PA Jermaine Stuart and persons from government’s oil and gas legal team.
Brassington made a PowerPoint presentation which he said included data from the five pre-existing studies. His presentation is now on the Ministry of Natural Resources’ website.
Since 2016
Giving a summary, he related that the project had been underway since 2016 and that in August 2020 when the PPP/C came to power, no major decisions had yet been made. The PPP/C, he said, “immediately engaged Exxon and started negotiations in October 2020.”
By the end of last year, a number of key decisions were arrived at and publicly communicated, according to government. These included, “Location of the termination of the gas to shore at Wales (determined to be the most economical solution). The selection of the location was critical to start the detailed studies such as the ESIA (Environmental and Social Impact Assessment) and the Geophysical and Geotechnical Studies (G&G) at a specific location versus 20 locations. Increase in the minimum commitment of gas from 30 MCFD (Million Cubic Feet per Day) to 50 MCFD. (This moved the net potential power from 150 MW to 250MW). Agreement on a timetable to achieve the project by 2024, with approximately the first 18 months to complete studies, complete engineering, and conducting a competitive tender for the construction of the pipeline.”
There was also broad agreement on the key financial considerations including: Estimated outer limit on the capital cost of the project, that funding of the pipeline by Exxon be out of Cost Oil (as defined in the 2016 Production Sharing Agreement with Exxon and partners), estimated cost per KWH delivered at the gate of the power plant at approximately 3.5 cents per KWH.
Also, “Definition of the project to cover: i. Construction of the pipeline by Exxon based on a competitive tender ii. Natural Gas Liquids (NGL) that will allow (the Government of Guyana’s) share of the NGL to be sold whereby such revenue (is) expected to exceed the cost paid for the gas; iii. Construction of a gas power plant (in phases) iv. Layout of Wales Development Authority to cater for a large expansion covering all of the above plus residential development, mixed use, and industrial demand.”
The power points were expounded on by Jagdeo who stressed that government was using studies done by the former APNU+AFC Government as it presses ahead with other financial, environmental and technical studies for the project.
Stabroek News expressed concern at government’s decision to use pre-existing studies alone to come to major decisions that would utilise billions of taxpayers’ dollars.
“I have never heard of a government anywhere, embarking on a project that might cost US$900M based on pre-existing studies. Particularly studies done under the previous government, (when the two governments) don’t see eye to eye on anything. I don’t know how one can argue that we can embark on a major project like this. This is not purpose built to what the PPP/C might have envisaged in its manifesto or even before it came to office. When you rely on those (studies), it would seem to be opportunistic and solely intended to provide a certain result without you having designed a purpose built study that would (address) the PPP/C’s issues,” Stabroek News’ Editor-in-Chief Anand Persaud stated.
“One of the major concerns is that you are embarking on a project but yet you have come to major decisions on a lot of things. Embarking in that way, raises serious questions on the due diligence that has been done, or if at all and will be one of the lasting concerns that people have” about the project, he emphasised.
Jagdeo in reply stated that exhaustive work was done as a pre-requisite for the project but that his government understands that detailed studies are imperative to a final decision on the project and that is why it would soon begin those.
He promised that as those studies are ongoing, the public would be updated on findings and that government would be transparent in the execution of the project.
From work done, he informed, a decision on the route of the pipeline has already been made so that it is away from any encumbrances that could occur if it were to be run in the busy under shore of the Demerara River.
Instead, it will be routed to land at Crane on the West Coast of Demerara.
“The pipeline would not follow the route of the Demerara River. We are studying two routes and the engineers are working to determine which of the two routes, but both run in that area. Just parallel but a little bit further left,” he explained.
“The power plant is going to be located almost to the southern end of the layout. The residential, commercial, business and other areas of the estate…those would be north. The river was found not suitable,” he added.
While it would only see 50 MCFD of gas brought in daily, the pipelines designed to bring in the gas would be 12 inches in diameter and have the potential to hold at least 120 MFCD of gas.
But he disclosed that although both sides have settled on 50 MCFD per day, it was not without exhaustive negotiations as ExxonMobil was adamant that it could only afford to give the promised 30 MFCD.
“Had a contention with Exxon too because they did not want to give us more than 30 (MCFD). But 30 would not allow us to generate 250MW … that we hope to get. The 50 (MCFD) would allow us to generate that and still have some additional gas that would remain for other purposes. We are looking at urea, polymers, proteins for the agriculture sector…Remember this is not a gas field, it is associated gas,” he said.
“The pipeline, that too was an issue. From the government’s side we insisted that there be a bigger pipeline to bring in additional gas. The 12 inches maximum would be 120 (MFCD)…So if anything happens you have a pipeline with storage. We are pushing for greater capacity to bring in gas there,” he added.
No FLNG
With financial analysis and data from countries that would have looked at Floating Liquid Natural Gas (FLNG) plants overwhelmingly showing the project too costly, Jagdeo said that having an offshore plant was ruled out.
A Japanese study – one of the five used to arrive at decisions – had favoured FLNG and that country had said that it would help to develop that facility and take off the gas derived from it.
Such a facility too, Jagdeo agrees, would not help develop this country’s local content potential as only a few jobs would be created with profits only going to a few.
“We are not creating the conditions for economic rent for individuals. We are creating the conditions so that Guyanese will have benefits,” he said and underscored that for all projects, current jobs such as cleaning, transportation, brokerage, “all have to be Guyanese; not a single one but everyone. We are not creating for one.
Jagdeo said that Guyanese should hold government to the commitment that when the project, estimated to be completed by 2024, is commissioned, they will have far cheaper energy.
