The oversupply trap

Apr 18, 2022 Editorial

Kaieteur News – The experts who know what they speak of, who study prior examples, are warning Guyana to do the right thing. We said this very clearly, as is obvious from the caption, “Another expert agrees feasibility study critical for Gas-to-Power Project -says Guyana must guard against being caught in oversupply trap” (KN April 15).

The problem is that Guyana’s leaders, who have the power in their hands to do something sensible are not listening to such cautions. In plain English, Government leaders dismiss the warnings with the equivalent of: they don’t know nothing, all they know to do is to make speeches. So, there is no heeding what international experts are saying repeatedly.

Trinidadian Energy Strategist, Anthony Paul said it; and so did Chatham House Associate Fellow, Dr. Valerie Marcel. Now the former Director of the Economics Department of the Caribbean Development Bank (CDC), International Economist, Dr. Justin Ram, has joined the voices that share both the positive and the worrying. The good is that Guyana’s gas-to-power project now racing to the starting line can offer benefits to citizens saddled with huge electricity bills. Citizens and country can be enriched through job creation, foreign exchange savings, and the basis for robust economic growth, all while reducing Guyana’s carbon footprint.

Those are the pluses. and we agree that they could occur. But only if the project is executed correctly, which is what the experts have insistently pointed out. This country can reap what is right, but it must start out with this gas-to-power project on the right foot. To do so, Guyana’s leaders need to embody the right mindset, where this expensive project is concerned.

It lies in a feasibility study done. Not just any kind of feasibility study, but a genuine and comprehensive one by credible people, who can be trusted to deliver what Guyanese can rely on. The gas-to-power project cannot be just on the say so of a leader who, it is now obvious, is a reckless gambler with the prospects and future of Guyana, and one who is stone deaf to what is safe and sound for Guyanese. The project started off on the wrong foot when it was being rammed down the craw of Guyanese as the best thing for them, without any authoritative and dependable feasibility study completed.

As International Economist, Dr. Ram asserted, Guyana must bear in mind the burdens of Ghana, which ended up with more than its people could chew and absorb. In the simplest terms, they had too much gas, and didn’t know what to with it, didn’t have any outlet to make use of its energies, its potentials. In the term of art employed by economists, it is the unwanted and undermining state of oversupply. To elaborate, Ghana had more gas than it needed, but was faced with the costly reality of ‘take it or pay for it.’ In the Ghanaian situation, the country has no choice but to take both as much gas as it needs, and also pay for amounts that it contracted for, but which it has absolutely no use for.

Ghana has such a long-term Power Purchase Agreement (PPA) in place that favours suppliers, but burdens the country with an annual bill of US$500M for gas power that it has no need for. Under that torturous PPA, Ghana must take 90 percent of the gas produced from its Sankofa field, even if it has neither need nor use for it. Ghana represents a hard lesson and sharp warning for Guyana, already hell-bent on getting its own gas-to-power project on track, without doing timely and viable demand and supply studies to avoid falling into the oversupply trap. This is particularly relevant given our tiny population, and considering our commercial and industrial needs, both current and in the future.

Indeed, citizens stand to benefit from cheaper and a more reliable supply of electricity, the absence of which has long been a plague on Guyanese. But leaders in the PPP/C Government must honestly consider the worse-case scenarios of low demand and oversupply. Those could leave us with a gas banquet and few in attendance. We can’t throw the excess gas in the garbage. We would have to pay for it.

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The oversupply trap

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The oversupply trap

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