Another expert agrees feasibility study critical for success of Gas-to-Power Project

Apr 15, 2022 News

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– says Guyana must guard against being caught in oversupply trap

By Kiana Wilburg

Kaieteur News – Similar to the positions held and disclosed by the likes of Trinidadian Energy Strategist, Anthony Paul and Chatham House Associate Fellow, Dr. Valerie Marcel; International Economist, Dr. Justin Ram agrees that the US$900M gas-to-power can be a springboard for national development.

The former Director of the Economics Department at the Caribbean Development Bank (CDB) firmly asserts that the project, once done correctly, can ensure affordable and reliable electricity that would boost economic growth, ensure job creation, lead to savings in foreign exchange, and reduce the nation’s carbon footprint.
But what he also concurs with is that a feasibility study would be in Guyana’s best interest so as to determine the overall viability of the project. The expert who possesses over 25 years of international experience in practice, research, development and management made this opinion known during an Oil NOW webinar that was held on Thursday morning. The informative session that was moderated by Oil NOW’s Research and Content Developer, Kemol King, allowed for some of the nation’s journalists to have a front row seat to Dr. Ram’s presentation on his white paper on the project.
During the question and answer segment that followed, Kaieteur News asked Dr. Ram for his perspective on how important it is for one to consider the feasibility of the project. The international economist said, “…Any project needs to have a feasibility study done and one of the important implications of that is the need to do a proper demand and supply analysis which I recommended. The reason for this is to ensure we get as close as possible to the needed supply of gas for the project. What tends to happen, and one of the lessons that has been learnt from other parts of the world, is that there is an oversupply agreement that is put in place.”
Dr. Ram continued, “What tends to happen is, if the government or those who are involved in the generation of electricity using the gas, they tend to be generating more electricity than is actually needed. Now of course the reverse can also happen but if that happens, it is quite easy to ramp up (production). So from that aspect I think the feasibility study is really quite critical…”
Citing two case studies Guyana ought to pay attention to where gas projects are concerned, Dr. Ram listed Ghana and Trinidad and Tobago.
Kaieteur News previously highlighted aspects of a report titled, ‘Guyana’s Gas-to-Power Potential,’ where University of California San Diego graduate student Kathryn Hillis noted that Ghana, like Guyana, suffered power outages, and it wanted to reduce power costs, lower emissions and make electricity services more reliable. That was addressed when Ghana approved the Sankofa gas project in 2015.
According to the World Bank, since the startup of the project, Sankofa resulted in the provision of power to 1.6 million households, decreased oil imports by 12 million barrels a year, and reduced carbon emission by 1.6 million metric tonnes.
Notwithstanding the benefits, the project has brought on extremely costly burdens on the people of Ghana. In summary, it was noted that the Ghanaian market is now severely oversupplied with gas it cannot use and must still pay for. In fact, the government is tied to paying US$500 million annually for unused power. This is due to the fact that Ghana signed a long-term take-or-pay Power Purchase Agreement (PPA) with gas and power suppliers, through which it would have to pay for 90 percent of the produced gas from the field, no matter the demand.
Dr. Ram said, “…So we have to be mindful of that, and I think to avoid this, I think it is critical to have private sector investment part of this because in putting private money in this the risk management approach is going to be very, very high. And by doing this, any potential fiscal burden could be reduced here.”
Dr. Ram added, “The other example I would cite is that of Trinidad and Tobago which built a very large gas to power plant in the south of the country and it was supposed to supply an aluminum smelter with electricity so of course you can imagine there was going to be a significant demand but what did not transpire was the smelter was never built so what happens there is that the country is generating far more electricity than it requires.”
What also made matters worse for the CARICOM nation is that it had “a take it or pay for it contract in place” while the owner of the grid is a publically owned entity. Given those two examples, he said Guyana should do a proper demand and supply analysis to ensure the viability of the project. “You really don’t want a situation where you are generating too much electricity,” expressed the expert.
Overall, the revered economist said it is quite evident from the cost benefit analysis of the project he took into consideration; that there would be significant benefits to the overall economy of Guyana. “I can’t see any appraisal that would be done that would make that cost benefit analysis a net negative…”
As regards Guyana achieving a low carbon future, Dr. Ram said this is important since it is imagined that the gas project would come with a specific time horizon attached. “It is critical to note that even as Guyana examines these other technologies, it is also looking at hydro and solar and the idea is to bring those on as the gas to power project is going to an end,” the former CDB official said.
In conclusion, Dr. Ram alluded that the project in his view would redound in significant benefits for Guyana as there is a lot of latent demand for electricity by entrepreneurs and industrialists who are desirous of playing a role in the country’s development.

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