VICE PRESIDENT Bharrat Jagdeo’s recent comment that the gas to power project in Guyana is a “no brainer” has gained much attention from media. Many commentators agree that investment in the proposed gas-to-power project is a transformational opportunity for the country, positioning Guyana among the majority of oil producing countries in the world that use gas as a cheaper, more reliable and cleaner source for electricity.
However, others believe that the government has not yet provided enough information on the economic feasibility of the project. A full feasibility study could provide useful information on project costs, but the government’s already-announced cost estimates suggest that the project will have clear benefits.
Preliminary estimates for the gas-to-power project, including the underwater pipeline that would carry gas to shore, but excluding the power plant, vary from US $600 million to US $900 million. This cost would be covered by the Stabroek Block co-venturers, which provides Guyana with the best possible financing and increased flexibility and financial capacity for the actual power plant.
Vice President Jagdeo estimated that the onshore power plant would cost around US $300 million. Although that’s a large sum, it’s worth noting that the costs of power infrastructure are normally spread out over decades, making the initial “sticker price” a poor measure. To add further perspective, Guyana’s Natural Resource Fund (NRF) holds nearly that amount after just one year of production from a single project.
As oil production continues in 2021 and the NRF profits from the increasing oil prices, Guyana is set to gain even more from oil revenues and boosting opportunities for infrastructure investment. Moreover, production will nearly triple when the Liza Two project brings 225,000 barrels-per-day in 2022. The Payara project will add a similar amount, beginning in 2024.
In addition to costs of the gas-to-power project, it is necessary to consider the economic benefits that could result. First and foremost, making electricity cheaper and more reliable for households and businesses, according to Vice President Jagdeo, would “change the entire dynamic of electricity production and pricing.” He estimated it would reduce electricity costs from 30 US cents to as little as three US cents per kilowatt hour (kWh). The International Monetary Fund (IMF) has stated that switching to gas and reducing electricity costs could reduce Guyanese residents’ basic living costs by over 5 percent per month on average.
Lower electricity prices could also drive growth for local businesses. According to Joel Bhagwandin, a local analyst at JB Consultancy and Associates, the gas-to-power project would make Guyana more competitive in industries like food processing and manufacturing that depend on reliable electricity. According to the World Bank’s Doing Business in 2020 report, Guyana currently ranks below Haiti and Jamaica, and well below the regional average, for access to, and cost of, electricity.
For context, gas-to-power projects have been implemented by nearly all oil-producing countries in the world. Major producers like Libya, Malaysia, Nigeria, Mexico and the Gulf States in the Middle East all use gas for electricity due to its lower cost, higher reliability and reduced carbon emissions compared to sources like coal or heavy oil.
That’s the key reason why the World Bank and IMF continue to support gas-to-power projects around the world, even as they steer away from power projects with higher emissions. Regional experts like Kevin Ramnarine, former Energy Minister for Trinidad and Tobago, have also encouraged Guyana to pursue the project, calling it a “win-win-win” in remarks earlier this month.
The new administration will need to ensure that the gas-to-power project is aligned with its long-term strategy for Guyana’s development and that terms for gas supply are consistent with efforts to develop renewable energy resources as well. If done right, gas-to-power could be a profound and widely shared benefit of Guyana’s new oil resources.