Jagdeo is in a maze of his own confusion!

Aug 11, 2021 Features / Columnists, Peeping Tom

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Kaieteur News – Reeling from the massive pushback against the PPP/C’s pet project – the gas-to-shore initiative – second Vice President, Bharrat Jagdeo, appeared on a TV interview in a desperate attempt to try to overcome the criticisms of the proposed project. Instead, all he did was to knot himself up in the maze of his own confusion.
Jagdeo is now changing his tune. When he was cornered over the absence of a Depletion Policy, his response was that there was a narrow window for fossil fuels since the world was moving towards renewables. As such, he implied that Guyana had to maximise its oil extraction in the limited period available.
Jagdeo, the advocate of the Drill Baby Drill! Pump Baby Pump! policy did not recognise then how this very argument of a narrow window for oil exploration would render the long-term investment in a gas-to-shore plant non-viable. Associated gas comes from oil production. Therefore, if there is only a short period for Guyana to benefit from oil production, why invest in a long-term energy project which relies on oil production?
Jagdeo is also supposed to be an environmental advocate and a champion of clean energy. But natural gas is not a clean source of energy. Even though it may be cleaner than Bunker C fuel for example, it is still a polluting fuel and not considered as a renewable. When asked by Neil Marks, the interviewer, how he rationalises his push for gas energy with the global thrust towards zero-emissions, Jagdeo changed his original assessment about the future of fossil fuels. He now says that the demand for fossil fuels will either remain stable or will increase.
Earlier in the programme, he had said that the global demand for energy was outstripping the investments being made in renewables. As such, he claimed there is a need for a transition source of energy, and for him that transition source is gas.
But why gas? If there is a need for an interim source of energy, what about solar power?
It would take less time to construct a 250MW solar farm than it would to establish a 250MW gas-to-shore project. The energy would be cleaner; it would not be dependent on any narrow window of oil production; and it would have few environmental risks.
But more importantly, it would be cheaper. The gas-to shore pipeline alone is expected to cost in excess of US$900M. The cost of a 250MW solar plant with a substation is expected to average around US$250M.
Jagdeo then put on the usual sales pitch. He again said that the gas-to-shore project is going to allow for electricity tariffs to be reduced by 50 percent.
That in itself makes the project not feasible. It makes no sense making such a large investment only to cut electricity tariffs by half. Guyana has one of the highest costs of power generation in the world, according to the Inter-American Development Bank. Reducing electricity tariffs by half will not allow for economic competitiveness. And this in itself will slash the much vaunted economic benefits of the gas-to-shore project.
In trying to sell the project against the concerns about its viability, Jagdeo says that the Japanese did a feasibility study of the project. He should produce that study so that the public can see it.
What is known is that the Mitsubishi Corporation of Japan presented an Oil and Gas Master Plan. The Plan provides a model for modular development of the oil and gas sector and is NOT a feasibility study of any gas-to-shore project. It examines how Guyana can use its natural gas for energy including for a liquefied natural gas plant. It speaks to both an offshore and floating power plants. It also deals with the development of a refinery.
A Gas to Power Feasibility Study undertaken by K&M Advisors had cautioned that though it is likely that available natural gas reserves are sufficient to supply a 250-300MW power plant, the Government of Guyana should obtain firmer estimates of the gas reserves available for power generation. Again, this was NOT a feasibility study of the proposed gas-to-shore project but a feasibility study of using gas for power generation. However, Energy Narrative did a feasibility study for the IDB and the Government of Guyana in 2018. This is a feasibility study on bringing gas-to-shore. This was done in August 2018 under the Coalition government. Yet, ironically, despite his government utilising all the studies done under the APNU+AFC, Jagdeo still says that the APNU+AFC did not leave any new projects in the Public Sector Investment Project pipeline. By using the very studies, which prove that the APNU+AFC was laying the groundwork for the gas-to-shore project, Jagdeo is contradicting himself, yet again.
The Energy Narrative Study, commissioned by the IDB, examined the economic and financial feasibility by comparing the (net present) value of the economic benefits of the overall project to the (net present) value of the economic costs of the project.
A more useful approach would have been to also consider whether equal or greater economic and financial benefits could not have been derived from alternative investments in solar energy, the cost of which has plunged on recent years.
The economic cost-benefit analysis found that the overall project has an aggregate economic net present value (NPV) of approximately US$918 million and an economic rate of return of 30 percent under the project’s Base Case assumptions. It is this 30 percent rate of return which has the PPP/C’s cronies salivating and hoping that this project becomes another cash-cow for them.
But if the rate of return is projected to be so impressive, why are the oil proceeds not being used to invest in this project? Why are small Guyanese investors not being provided with the chance to have a bite of this possible 30 percent rate of return? Why are expressions of interests being invited from private investors, including, who knows, another group of syndicated investors?
The Narrative Study was done on the assumption of the gas landing at a place called Woodlands on the East Coast of Demerara. The PPP/C is now saying that the location which it has identified is at Wales. This would require a recalculation of the feasibility costs since there are greater environmental risks to be factored in landing the pipeline near to a heavily populated area. But do not tell that to Jagdeo. As far as he is concerned, the numbers show that the project is feasible.

(The views expressed in this article are those of the author and do not necessarily reflect the opinions of this newspaper.)

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