Sunday, June 26, 2022

Price tag for Guyana’s gas-to-energy project not exorbitant, economist says

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Initial estimates for Guyana’s massive gas-to-energy project hover around US$900 million to US$1 billion, with potential to increase, but considering the South American country has zero infrastructure in place and is essentially starting from scratch, one economist says the estimates are not exorbitant.

Former Director of Economics at the Caribbean Development Bank (CDB), Dr. Justin Ram believes that the cost is essentially a “ballpark” figure for a project of this magnitude and might even increase.

In a recent discussion with OilNOW, he reasoned that Guyana is venturing into the natural gas arena “starting from scratch” with no infrastructure in place, and so a lot of work needs to be done before it can start to develop its gas resources.

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“So, I am not too concerned about that price because I think that is within the general ballpark of trying to bring gas to shore… I don’t think it sounds out of wack,” he told OilNOW.

Dr. Ram also pointed to another important consideration; the gas-to-energy project when it comes on stream will be of significant benefit to Guyana and its people, that is expected to deliver value that would exceed US$1 billion.

Last year, head of Guyana’s gas-to-energy taskforce, Winston Brassington, provided a breakdown of the cost; between US$570 – $630 million for the offshore pipeline and the riser; $80 – $100 million for the onshore pipeline; $120 million for the gas plant and between $40 – $50 million for infrastructure. At the time, government had said the project would be paid for in part through cost oil.

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Bids from 12 companies were opened in January for the combined construction of the natural gas fired power plant and natural gas liquids (NGL) plant for the landmark project. The 12 bidders included Amerapex Cooperation (USA); NGC Group (Trinidad and Tobago); China Machinery Engineering Cooperation; CEPCOII Electric Power; CH4 Guyana Incorporated and Lyndsayca Incorporated; China Enegy International Guyana Company Limited; Apan Energy; Wison Offshore and Marine Limited; Constutora Queiroz Galvao; Tecnicas Reunidas; and Power China International Group Limited.

The decision for combined construction of the facilities follows extensive evaluation of technical and execution factors with Stabroek Block operator, ExxonMobil affiliate Esso Exploration and Production Guyana Limited (EEPGL). The findings show that there would be substantial cost savings by combining the construction of the two facilities hence the government’s move to invite firms to bid that can prequalify to engineer, price and construct these two integrated plants.

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Government has also invited investors to set up industries at the Wales Development Zone where the onshore facilities will be, to make use of natural gas by-products.

Dr. Ram said he believes Guyana is heading along the right path by encouraging private participation in the financing of the gas-to-energy project. The economist said this would help to reduce risk to the fiscal framework.

He also believes that the overall cost of the project can go higher as the world faces “rapid inflation.”

“The cost of that project could actually go up again but that has nothing to do with what is going on in Guyana,” he said.  “It is all about international price of capacity, the price to bring people in, the price for the materials to build the actual infrastructure… when you start to bring in the type of turbines and so on to start utilizing the gas for power generation, all that. So, I would imagine that the price is likely to go up again.”

With the country’s energy demand expected to grow within the next five years, the government has eyed the reduction of electricity costs by 50 percent with natural gas.

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It will also help to phase out the use of expensive and carbon-intensive heavy fuel oil. The power plant is expected to generate 300 megawatts (MW) of power and the Natural Gas Liquids (NGL) plant will meet domestic demands.

A 225 km 12” pipeline will be constructed to transport the guaranteed minimum of 50 million standard cubic feet per day (mmcfd) of natural gas from offshore Guyana to the Wales Development Authority, where the onshore facilities will be located.

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