DISCUSSION of a potential gas-to-energy project has taken centre stage over the last several months. Last week, Vice President Bharrat Jagdeo held a press conference to further discuss plans for the project. Due to the array of sometimes-conflicting information out there, it is important to understand what decisions have already been made and what the government is still working on to ensure transparency during planning and ahead of construction.
Although government’s plans and discussions with ExxonMobil regarding the gas-to-energy project have been taking place since 2016, additional meetings between the new administration’s appointed task force and the Stabroek Block operator began in late 2020. Since then, the government has made a number of decisions that are likely to shape the development of this project and bring Guyana closer to the goal of cheaper and more reliable electricity.
According to Vice President Jagdeo, the gas to energy project will include a pipeline running from the Liza Destiny floating production storage and offloading (FPSO) vessel to an onshore power plant that is planned for the site of the former Wales Sugar Estate. Wales was selected as the most economical location with favorable environmental conditions after a total of twenty sites were reviewed. Although the government considered a floating gas treatment facility, an onshore plant was found to be better in terms of local content, overall costs and benefits to other industries.
This focus on local opportunities was a primary reason Wales was chosen. Vice President Jagdeo outlined that the location could make it a hub for the development of new opportunities in other industries. In addition to fuel for power generation, natural gas can provide the raw materials for industrial production of fertilisers, plastics, chemicals and more. The government is also discussing complimentary agricultural projects like an algae farm or agricultural processing plant that could take advantage of existing sugar infrastructure and the new steady supply of inexpensive power. These additional and diverse industries are major side benefits of gas production that producers like Trinidad have historically taken advantage of to diversify, expand, and increase the competitiveness of their economies.
To ensure that the project is economically viable, the previous administration worked with the Inter-American Development Bank and Japanese conglomerate Mitsubishi to carry out five feasibility studies beginning in 2016. These studies informed the current administration’s decisions on moving forward, as well as the location and type of plant.
Although the government is still working through the environmental, geotechnical and geophysical studies to choose where the pipeline will come to shore, it has already decided that the pipeline will carry up to 50 million cubic feet of gas per day. A pipeline of this size would provide more than enough gas to meet Guyana’s current energy needs. According to studies, the new power plant would reduce electricity costs to less than 7 cents per kilowatt hour—cutting current prices in half.
The government also stated that certain aspects of the project would be funded by the Stabroek Block co-venturers, which will be cost-recovered. This means that they will cover the upfront costs of the project, allowing Guyana to avoid taking out interest-bearing loans from international financial institutions.
The Stabroek Block co-venturers will then be able to recover the costs through future oil production as stated in the Petroleum Agreement, subject to government audit. With oil production expected to increase significantly in Guyana in the next few years, the cost recovery process could be quick. Despite some reports to the contrary, the cost recovery process is already enshrined in Guyana’s current Production Sharing Agreement (PSA), and adding something like a pipeline would not mean reopening the contract.
The cost of the pipeline and power plant are not yet finalised, but analysts, international organisations and regional energy experts have widely agreed that the project will likely be a smart financial move for Guyana. According to the government, the project could start providing power as soon as 2024, after an additional 18 months for complementary economic and environmental studies and planning.
If this timeline is kept, lower energy bills are likely to be one of the most transformative early benefits of oil development for Guyanese who are accustomed to enduring some of the most expensive and unreliable power in the region.