Oil and gas sustaining the economy

OIL and gas are finite resources, meaning that they are non-renewable and there will come a time when they will no longer be available to be extracted. This is however estimated to be not until the next 20-30 years. Even though the sector might not be long-termed, it is vital for the stimulation of global economic growth and social development, aiding in vast improvements to standards of living. The 17 Sustainable Development goals (SDGs) governing major world challenges were established by the United Nations (UN) in 2015. These challenges govern standards of living and include poverty, hunger, health, education, clean water, and affordable energy. The World Energy Outlook (2018) purports that 53 per cent of the world’s demand for energy used primarily for transportation, chemicals and manufacturing are supplied by oil and gas. This is not expected to change drastically anytime through 2040, but the demand for oil and gas is expected to increase. The current position of the world’s economy is that oil and gas are necessities and in great demand. Guyana has been blessed with the opportunity to provide this resource to international markets and would be able to benefit immensely from the returns. Opportunities such as these are crucial, especially for developing countries such as Guyana. While there is recognition that the process needs vast improvement, like the other sectors, with time these challenges will be overcome with guidance from relevant professionals and authorities.

ExxonMobil has been recently called out by pressure groups, who are trying to transition to safer energy practices and who are trying to enter Guyana’s oil industry. However, the relationship between Guyana and ExxonMobil remains intact and Exxon will use their investment returns to fund their energy-transition strategy. The gas-to-shore project is a trending topic in Guyana. This project is proposed to be set up at Wales, where the sugar estate was once in operation and which sourced income for thousands of employees over the years until 2017 when all operations were halted. This project has drawn attention locally, regionally and internationally with mixed reviews on whether this route should be taken or not.  However, this project is in line with the government’s plans in attaining cheaper energy for Guyanese, along with adopting the sustainable development goals set forth by the UN. In the gas-to-shore project, the natural gas will be used for generating electricity along with producing liquified petroleum gas (LPG). LPG is a safe and clean gas which helps to reduce the carbon emissions. In Europe, LPG offers 15 per cent lower greenhouse gas emissions than heating with fuel oil. This indicates that Guyana is on the right track in sustaining the environment. It has been noted how costly it is for GPL to supply electricity throughout the country and the cost of maintaining and upgrading the systems. This challenge could have long been minimised if the Amaila Falls Hydro Project were in full operation at this time.

Based on an analysis carried out by Chief Financial Analyst Joel Bhagwandin, of JB Consultancy & Associates on the gas-to-shore project, initial investment is estimated at US$400 million which will be funded equally by both ExxonMobil and the Government of Guyana. Two scenarios are given below for reference to indicate the expected operating profits, along with energy demand for a 10-year period from 2021-2030. Scenario One: if one million MWs of electricity is generated annually, expected revenue is US$125,000 million, LPG revenue is estimated at US$20,000 million with an operating cost (40 per cent) to be US$58,000 million, giving a net operating profit of US$87,000 million. Scenario Two: if 2,190,000 million MWs of electricity is generated annually, expected revenue is US$273,750 million, LPG revenue is estimated at US$26,000 million, with an operating cost (40 per cent) to be US$119,900 million, giving a net operating profit of US$179,850 million. Energy demand forecasted for scenario one is expected to increase by 55.13 per cent to 1,491,912 MWH, while in scenario two demand is expected to increase by 182.20 per cent to 2,662,238 MWH. However, in a recent press conference by the vice-president, he reported that the project is estimated to be around US$500 million to US$800 million, and that the actual cost will be known when the government goes to tender following completion of the requisite studies.

The analysis conducted by the analyst though shows that even if the project is US$500 – US$800 million, the benefits will outweigh the costs and thus is still a feasible project and is much needed. The implementation of this project can result in 50 per cent savings on fuel imports which is currently over US$500 million. Energy costs for manufacturing firms is currently 40-50 per cent of their operating costs; this can be reduced drastically with the project in operation. The gas-to-shore project is expected to create thousands of jobs for many persons, especially in the vicinity of Wales, thereby starting back economic activity flow. This investment will also result in development projects such as homes being constructed, which will have a spin-off effect mainly on the banking and construction sectors. Public and private investments are expected to increase on an average of 52 per cent annually, or GY$345 billion over the next decade. This project will aid in Guyana achieving affordable energy, conquering poverty and hunger (agro-processing will be commissioned) along with families being able to send their children back to school. In the end, billions of dollars will be pumped back into the economy and the cycle will continue with further investments.

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