Guyana walking slippery slope with failure to determine final price tag for gas project – Int’l Analyst

Aug 30, 2021 News

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Kaieteur News – To ensure taxpayers are not heavily burdened with repaying the development costs of the contentious gas-to-energy project, Arthur Deakin, an international analyst and Co-Director of Energy Practice at America’s Market Intelligence (AMI), is calling for the PPP/C Government to have a consensus on the final price tag of this project. This he asserted, will guard against cost overruns which have the potential to be in the billions of dollars.

Deakin aired this concern about the costs of the gas-to-energy project during a recent appearance on Kaieteur Radio’s programme, Guyana’s Oil and You.
There he said, “Guyana needs to have a common consensus on what the cost is going to be before you start building; this is very important.(When there are cost overruns), that ends up hurting the pockets of local taxpayers, it hurts the government’s pocket. So it is important to have clarity on that issue before building,” Deakin explained on Tuesday during his interview with Senior Kaieteur News Journalist, Kiana Wilburg.
The Co-Director went on to indicate that AMI – the consultancy firm to which he is attached – has not looked at cost overruns for Guyana’s estimated USD$900M gas-to-shore project. On that same token, he referred to cost overruns in Latin America, particularly in neighbouring Brazil and the corruption which engulfed same.
“Let’s say that there was a base cost of USD$100M for a project; they would say that it costs $200M. Then they would split the other $100M between the people that were involved in the bribes and all of that,” Deakin pointed out.
He continued, “It is very important to have very clear reports done and a clear consensus on what the cost is going to be. Of course, you gotta have some room for cost inflation, but that has got to be written in the contract and determined before you start building anything.”
Deakin’s comments come on the heels of cautionary research done by an independent United States think tank, the Centre for Public Integrity (CPI). In the cases the body 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 overruns 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.
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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