ExxonMobil eyes US$ billions in returns on gas pipeline alone

Jul 18, 2021 News

…study projects profits up to 52% of investment from selling gas

Kaieteur News – Esso Exploration and Production Guyana Limited (EEPGL)—ExxonMobil Guyana—in its Production Sharing Agreement (PSA) with the Guyana Government is to develop a plan for each oil field it is looking to develop that would include a feasibility study for the use of any associated gas discovered.
According to a study undertaken by Energy Narrative and commissioned by the Guyana Government and the Inter-American Development Bank, the operator, ExxonMobil Guyana, stands to earn billions of US dollars with returns as high as 52 percent on the investment.

The cover page for the Energy Narrative Report submitted to Government and the IDB.

The information is documented in the Energy Narrative Report, which notes that the highest economic return under the proposed 50 million cubic feet of Natural gas per day and in a high oil price scenario, returns could be had to the tune of nearly US$2.8 billion in net present value and a 52 percent economic rate of return.
If Natural gas supply were increased to the theoretical 145 million cubic feet per day case, the offshore natural gas pipeline would have an economic net present value of just over US$3 billion and an economic rate of return of 41 percent, according to the study.
The report said too, “under the worst case combination of both high project costs and a low oil price outlook, the project is marginally feasible, showing a US$22 million economic gain over 20 years and an economic rate of return of 11 percent—just above the 10 percent hurdle rate.
According to the report, the offshore natural gas pipeline’s economic feasibility was determined by comparing the economic costs of building and operating the infrastructure to produce, prepare, and transport the Natural gas to shore with the economic benefits that the Natural gas will bring.
It noted that the upstream Natural gas production and offshore pipeline’s economic costs include the capital cost of the additional equipment required to produce the Natural gas and the capital cost to build the pipeline, the annual cost to produce the Natural gas and operate the pipeline, and any environmental costs associated with the pipeline’s operations.
According to the report, the offshore pipeline’s economic benefits include the avoided costs that would have been incurred if the offshore natural gas pipeline had not been built.
It said too that the Natural gas delivered by the offshore pipeline will primarily replace heavy fuel oil (HFO) that is currently being imported for electricity generation.
As such, “the economic benefits from building the offshore natural gas pipeline therefore include the avoided cost of importing HFO and the avoided economic cost of carbon dioxide (CO₂) emissions that would result from burning the HFO for electricity generation.”
The report did caution that the analysis does not include any economic benefits from increased job creation both directly from the construction and operation of the project and indirectly from the greater economic activity associated with the pipeline.
According to the Report, “while the pipeline will clearly bring some job creation benefits, this value was not quantified for this analysis.”
Energy Narrative said, “this economic cost-benefit analysis (CBA) finds that the offshore natural gas pipeline has an aggregate net present value (NPV) of approximately US$782 million and an economic rate of return of 30 percent under the project’s Base Case assumptions…This indicates that the offshore natural gas pipeline is economically viable.”
It noted too that a sensitivity analysis was performed to estimate how changes in key variables would impact the offshore natural gas pipeline’s economic feasibility.
Three independent variables were included in the sensitivity analysis: the volume of Natural gas shipped by the pipeline, the cost to produce the Natural gas and build and operate the pipeline, and the price of HFO that the Natural gas will displace. These variables were selected based on the likelihood that they could change and their potential to have a material impact on the offshore natural gas pipeline’s economic feasibility, according to the study.
This publication had previously reported that the gas to be transported from the Liza Destiny by way of a gas pipeline after which the gas would be sold to a third party.