Thursday, October 6, 2022

Market arrangements for Guyana’s gas supply framework

Must Read

Bobby Gossai, Jr.
Bobby Gossai, Jr. is currently pursuing the Degree of Doctor of Philosophy in Economics at the University of Aberdeen with a research focus on Fiscal Policies and Regulations for an Emerging Petroleum Producing Country. He completed his MSc (Econ) in Petroleum, Energy Economics and Finance from the same institution, and also holds an MSC in Economics from the University of the West Indies. Mr. Gossai, Jr.’s professional experiences include being the head of the Guyana Oil and Gas Association and senior policy analyst and advisor at the Ministry of Natural Resources and Environment.

In a market-oriented framework, it is partly up to customers themselves to determine what degree of security they want – for example, they can install back-up systems, they can physically contract for gas and/or become actual or virtual storage operators.

The current framework, however, does not ensure that:

  • Customers who will be contracted for firm gas can hold their shippers/suppliers to account for delivering that gas by suing for breach of contract or demanding compensation;
  • Domestic and priority users are protected by safety monitors and supplier obligations;
  • In the case of consumers who will be experiencing a gas deficit, it is those shippers/suppliers who were ‘short’ of gas that will have to pay for the costs of balancing the system.

How the Market will provide Security of Supply

The Guyana Offshore Blocks have the potential for a major source of gas into the Guyanese and regional markets and investors are looking at the supplies that are highly diverse, and the investments that will be required for such projects.

Currently, Guyana does not have an interconnected natural gas infrastructure, the market will have to develop infrastructure for gas from a variety of overseas and local sources. New Liquified Natural Gas (LNG) terminals will have to be developed. Together these, as well as the other new projects, will add to the gas market development.

As well as volume and capacity, the local market will be providing a diversity of supply through investments in different projects with the potential to source gas through the various primary producing fields.

Flexibility on the demand side, particularly from the electricity generation sector, has an important role in maintaining security of supply. Gas-fired power stations normally account for a significant proportion (approximately 22%) of annual gas demand in developed economies but can reduce this through the ability to switch from gas to alternative fuels. In addition, demand reduction by the industrial sector can offer even further flexibility to the system.

Efforts to Strengthen the Current Framework

The Guyanese gas market will need to be effective in addressing the drivers of security of supply and be able to provide a high level of security, evidenced by the lack of involuntary interruptions and the low risk of energy unserved. However, there will have to be continuous action to further facilitate the local market in providing security of supply.


There must be a commitment to introducing fundamental change to the planning system for major energy projects. Feeding into this must be a comprehensive programme of work that should be used to reduce planning barriers for developers of gas infrastructure projects, including:

  • A review of the onshore consents processes with the aim of rationalizing and streamlining them.
  • New legislation to aid offshore developments, as soon as parliamentary time allows.
  • The provision of information concerning the government policy context and indeed the national need for new gas supply infrastructure projects to aid local decision-makers.

The following proposals could help to ensure security of supply, which will also be assessed alongside measures that can be implemented domestically, including:

  • Requirements on gas in store.
  • Development of a Guyanese Grid.
  • Greater co-operation between local transportation and transmission system operators.
  • Ensuring diversification of energy supplies and solidarity between the local regions.
  • Development of a common internal energy policy.

Emergency Cash Out Arrangements

In addition to cash-out arrangements that operate every day, there are also so-called emergency cash-out arrangements, which apply for example when there is an insufficient gas supply to meet demand. The government will be required to approve significant changes to emergency cash out ahead of seasonal market conditions. These changes enhanced the incentives for shippers to avoid a gas emergency by increasing the penalty that they would pay for having insufficient supply to meet the needs of their customers.

Safety Monitor Levels

To further ensure the safe operation of the future gas transportation system, the National Grid will be required by legislation to have in place safety monitors. Safety monitors (otherwise known as storage monitors) ensure that there is a minimum amount of gas in storage to be available across Guyana, for the System Operator to safely manage the system at times of emergency. These safety monitors will act to protect the gas supply of domestic customers and certain other categories of customers, for example, hospitals.

Safety Monitors

Introduction of safety monitors which will allow approved modifications to arrangements, a number of which could contribute to an improvement in security of supply. One such proposal should be aimed at providing an appropriate level of compensation to shippers in the event that there was a curtailment of withdrawals of gas from storage as a consequence of the safety monitor arrangements. Following approval of such a modification proposal, the behaviour of shippers will indicate a degree of increasing confidence in the gas reserve arrangements (for example, with shippers opting to restock gas in-store when there were commercial opportunities for storage cycling).

Improved Information Provision

Reliable, good quality information, provided in a timely fashion, is a pre-requisite if the market is to be able to deliver secure gas supplies. There must be a number of developments to increase the amount and accuracy of information that is available to the market. One of these should be the introduction of the Gas Balancing Alert, which warns the market that additional action is needed to ensure that supply and demand balances.

A further example of the initiatives to improve the quality and quantity of information provided by the National Grid to the market could be the creation of a web-based Daily Summary Report, which will bring together a number of important items of information relating to the gas supply-demand and storage situation.

In addition, Guyana must be committed to introducing new arrangements for the provision of forward-looking energy market information and analysis relating to security of supply. The objective of these arrangements would be to brigade in one place relevant data and analysis on the medium and long-term adequacy of future energy supplies to assist energy market participants with their investment and purchasing decisions and to help early identification of areas where policy may need to be reviewed.

Measures to Promote Energy Efficiency and New Technologies

Guyana should implement a number of policies to reduce the consumption of fossil fuels and reduce carbon emissions, through energy efficiency and the use of alternative fuels and new technologies. In addition, alternative fuels and technologies, such as biomass, solar water heating, carbon sequestration, hydroelectricity and wind farms should be promoted through a variety of measures, such as increased support for research and development, raising of awareness through publicity campaigns and demonstration projects, and direct intervention through obligation/regulations or grants and other financial incentives. All these measures will, in the longer term, reduce the economy’s reliance on gas by reducing the demand for gas from households, industry and commerce, and from the power generation sector.

Risks to Security of Supply

The nature of the future Guyanese gas market will be rapidly changing. As the production capability of the Guyana Offshore Blocks declines, so too will the ability to rely on additional, flexible supply from gas fields in these blocks during periods of high demand.

Guyana is likely to become a significant supplier of gas to the regional markets in the medium term. The increasing LNG capacity will allow the country to export gas to a number of other destinations. Although investment in liquefied natural gas (LNG) is increasing, in the meantime the gas supplies could still be constrained by access to pipeline infrastructures.

However, as the local economy becomes more dependent on imports, the supply chain is also lengthening; and some supplies will be increasingly coming from or through countries in less politically stable regions and markets that are not always open and competitive, potentially increasing the risk of supply interruptions. Gas reserves are concentrated in a few countries, potentially resulting in risks around market power or reliance on a small number of producers.

The experience of when some import capacity was not fully utilised despite price differentials which should have made some countries an attractive market for gas suppliers, showed that the availability of import capacity does not guarantee that gas will be available to fill it.

Going forward, and as Guyana will rely more on gas, it will increasingly look to other sources of supply (e.g. LNG), increased storage and other forms of flexibility (e.g. demand-side response, and fuel switching capability). These will play a growing role in managing fluctuations in the amount of gas supply available at any one time and the level of demand, both from season to season and from day-to-day.

However, there is also a risk that – while currently investing heavily into new import infrastructure and storage – the market may not correctly anticipate the need for the ‘next wave’ of investment and may not bring this extra capacity on-stream sufficiently in line with demand. This could lead to supply interruptions or periods of high/volatile prices when the market is “tight”; in either event, there could be significant economic impacts.


Latest News

‘TT companies will move to Suriname if Ramps doesn’t get local content certificate’ – Trini business strategist

If Guyana fails to grant Ramps Logistics a Local Content Certificate to operate within its oil sector, Trinidad and...

More Articles Like This