Natural Gas to Shore Proposal and the National Budget 2021 Part 5

Introduction

Today’s column starts my review of the Government of Guyana’s, GoG’s, natural gas to shore proposal, as prioritized in the 2021 National Budget. This proposal is, in my view, the most advanced I identify in the Budget, when judged from a strategic perspective. Undoubtedly, it is central to fulfilling local content requirements from Guyana’s oil and gas sector. Indeed, the Budget proclaims the proposal is designed to secure “positive spillovers” from the emerging sector to the remainder of the economy. Further, the Budget’s stated perspective is that “the single biggest impediment to accelerated … development is the absence of adequate, affordable, and reliable energy”.

The Budget offers a brief summary of the proposed project. This has been supplemented since by the Authorities with additional and updated public releases and statements. In the next section I summarize the key Budget data.

Budget Project Summary

First, the intended project is based on piping offshore natural gas to onshore Guyana. Second, a 210 km pipeline is planned to transport the gas. Third, a 250 MW power plant is to be constructed onshore. Fourth, an industrial park and an LPG plant are to be built alongside the power plant. The former will accommodate agricultural and manufacturing activities and the latter cater for domestic use and export.

During this year “detailed geophysical, geotechnical, engineering and environmental impact assessment studies are scheduled for completion to inform government on technical considerations.” An energy master plan is envisaged to create an energy mix, which brings together gas to shore, hydropower, (Amaila Falls Hydropower, AFH), solar, wind and biomass. The latter elements in the mix require building solar farms mini-grids. $700 million has been budgeted for grid systems.

The April 2021 Update

Following the February 12, 2021 presentation of the 2021 National Budget, the Authorities have since released updated information on the proposed energy master plan. These are summarized in this section.

First, it was announced that the gas to shore plan had been underway since 2016, and was led by studies undertaken on behalf of the previous government. The new government, however, discovered that when it came to power, “no major decisions had yet been made.” The new Government therefore, “immediately engaged Exxon and started negotiations in October 2020”. And by the end of that year several key decisions were arrived at and publicly communicated.

Those decisions are: 1) to locate the gas to shore terminal at Wales. It has been asserted that, the Wales location is the most economical option. Thus, it has been announced that over 20 locations have been thoroughly evaluated and the two best are Ogle, behind Eccles, and Wales. Wales was chosen because of a number of features; lower population and risk exposure; lower likelihood of flooding; lower land cost; greater suitability for spatial economies, spillovers and linkages; and better constructability. The Authorities further stress that the terminal location is an urgent requirement as it is a must in order to inform the conduct of those detailed studies that are location specific; for example, the Environment and Social Impact Assessment, ESIA, and the Geophysical and Geotechnical Studies.

And, 2) it is also a must requirement for facilitating an increase in the minimum scale of the natural gas plant from 30 thirty million cubic feet per day, MCFD, to 50 MCFD. This is the equivalent to moving from providing 150 MW net to providing 250 MW net.

In the April 2021 release the Authorities announced also that agreement had been reached on a schedule to complete the project by 2024. Further, the first 18 months is dedicated towards completing studies and engineering, as well as undertaking a competitive tender for the construction of the pipeline.

Significantly, the Authorities announced “broad agreement” on what they termed as the key financial considerations. As detailed, these include: 1) estimated capital cost of the project 2) funding of the pipeline by Exxon out of Cost Oil 3) estimated cost per kwh delivered at the gate of the power plant at approximately 3.5 cents per KWH.

Finally, the Authorities define the project as covering - construction of the pipeline by Exxon based on a competitive tender; - providing Natural Gas Liquids (NGL) that will allow GOG share of the NGL to be sold above cost paid for the gas;- construction of the gas power plant (in phases);- the establishment of the Wales Development Authority to cater for a large expansion covering all of the above plus residential development, mixed use, and industrial demand.

Gas to Shore Savings

The Authorities have presented information indicating their calculation of hours of yearly operation of the 250 MW plant, 8760 hours; estimated plant utilization rate, 95 percent; consequent kilowatt hours generated, 2,080,500,000; the cost of generating this amount of kilowatt hours at the existing GPL plant is US$295.9 million; and the estimated cost of generating this amount at the 250 MW natural gas plant is US$143.8 million. Total national savings is the difference between the latter two sums; that is US$152.1 million. These data are shown in Table 1.

Projected CAPEX

The data released by the Authorities in April this year also provide an estimate for the capital expenditure required to bring the pipeline project to Wales. This is huge, nearly one billion US dollars. Most of this is for construction of the offshore pipelines and riser, up to 630 million US dollars, followed by the gas plant, 120 million US dollars and the onshore pipe lines at 80 to 100 million US dollars. Infrastructure capital spending is projected at 40 to 50 million US dollars. These data are revealed in Table 2

Conclusion

Next week I move from description to evaluation of this proposed project. In the interest of full disclosure, I shall start by referencing the studies undertaken by the previous administration and my role in these.