US Independent think-tank warns Guyana about massive cost overruns for gas projects

Aug 25, 2021 News

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– Says they can be as high as 45% or more

By Kiana Wilburg

Kaieteur News – The risks to government revenue from inflated exploration expenses are significant, but they pale in comparison to the risks of inflated expenses during the development phase of oil and Natural gas projects. Often times, these inflated costs run into the tens of billions of dollars. This was noted in many instances that were researched by US independent think-tank, The Center for Public Integrity (CPI). In the cases it examined, CPI found that cost overruns on Natural gas projects “are the norm rather than the exception, often by 45% or more.”
In one of its analytical papers on this subject, CPI noted that initial estimates of capital costs for large petroleum projects are almost never correct. It noted for example that there were massive cost over-runs in the first phase of Sasol Limited’s Pande Temane project. Sasol Limited is an integrated energy and chemical company based in South Africa. The company was formed in 1950 and is now one of the biggest corporate carbon emitters in the world. As for the project in question, it involves a pipeline that was built from the gas fields of Pande and Temane in Inhambane, Mozambique. CPI during its research found that the estimated cost for the project was pegged at US$600M but the final price tag ended up being over US$1.2B.
Over in Australia, CPI found that all Liquefied Natural Gas (LNG) projects exceeded their initial cost estimates by at least 40%. The same trend was found in Papua New Guinea (PNG) too. In PNG, a Liquefied Natural Gas project had carried an estimate of US$8 billion to US$9 billion when the project was approved, but then it climbed to US$15 billion when construction began and upon completion, it ballooned to US$19 billion.
In one of the cases it studied in Angola, CPI found that the cost overruns were even worse: initial estimates were pegged at approximately US$3 billion for one LNG project while the final costs were over US$10 billion.
Taking the foregoing cases into account, the American think-tank urged countries, particularly new producers like Guyana to be wary of the costs for such projects as the evidence shows they often times inflated.
In Guyana, the government says that the planned gas-to-energy project is expected to cost $900M. But there is no guarantee that this would be the final cost. The requisite geophysical and economic studies are still being done for the project. Be that as it may, Vice President, Dr. Bharrat Jagdeo, previously gave assurances that the project costs would not exceed US$1B.
Kaieteur News had previously reported that the gas-to-energy project is being designed to provide 250MW of power to the national grid, following its estimated operationalisation in late 2024. It is also estimated to create about 775 jobs. About 700 of these will be aggregate to the construction phase, while the remaining 75 are for the other aspects of the project life cycle.
The proposed project would bring associated gas from two ExxonMobil Guyana-operated projects offshore being the Liza Phase One and Two operations via pipelines to onshore gas processing facilities. The pipeline would transport up to 50 million standard cubic feet per day of Natural gas to the facilities. The maximum flow of the pipeline is approximately 120 million standard cubic feet of gas per day. All of the gas will be transported to the Wales Development Site.
ENVIONMENTAL CONCERNS
It was on June 27, 2021 that this newspaper published an article highlighting the devastating effects this project could have on Guyana’s marine life. This was confirmed following a perusal of the project summary that was submitted to the Environmental Protection Agency (EPA).
ExxonMobil in the document noted that the project could impact Guyana’s marine geology and sediments. It said this could occur through the installation of offshore and non-routine or unplanned events, which was not explained. Regarding the possible effects on human life and the environment where this is concerned, ExxonMobil said it could result in the “Disturbance of the seabed during offshore pipeline installation activities, has the potential to affect benthic habitat and cause death/injury of benthic fauna.” In short, any marine life that is near or close to the seafloor where this project is being done is at risk of being killed or injured.
The oil giant goes onto state that the project has the potential to affect some marine fish in the project area by way of activities such as underwater sound generated by marine component operations and activities, ship strikes, lighting on offshore pipeline installation vessels, wastewater discharges, offshore pipeline construction, hydro testing discharges, vessel movements, operational effluent discharges, and non-routine or unplanned events which again was not explained. Exxon noted that the foregoing ecological impacts could potentially have ramifications for commercial and/or subsistence fisheries.
It should be noted that ExxonMobil in collaboration with the government, is moving ahead with this project at a time when the world is moving away from fossil fuel based projects. In May for example, this newspaper had reported on the United Nations’ (UN) call for a shift in the policy of countries worldwide, to move away from supporting fossil fuel projects through financing such as subsidies, towards renewable energy and the promotion of the transfer of technology to developing countries.

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