Guyanese must know how much coming out of their oil earning to repay for pipeline gas plant -Yog Mahadeo

Sep 13, 2022 News

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Kaieteur News – As Guyanese continue to call for an updated feasibility study for the Gas-to-Energy (GTE) project, one advocate has restated the importance of government being transparent with the deal especially since the cost will be deducted from the oil revenues.

Transparency advocate, Dr. Yog Mahadeo underlined the necessity of the deal being made public during a recent interview with this publication. According to the 2016 Production Sharing Agreement (PSA) Guyana signed with US oil major, ExxonMobil, the cost to develop the gas project will be deductible from cost oil. This means that Guyana will pay for the project through its oil earnings, which ExxonMobil will deduct upfront. It must be noted too that the same oil contract allows for 75 percent of oil revenue be deducted up front to cover expenses, while the remaining 25 percent would be shared equally between government and the oil company.

As such, Dr. Mahadeo explained: “the gas to energy project would come off of cost oil and so there has to be concerns as to how much more we would be eating into cost oil. So on one hand, we want to make sure we can exploit our resources and get what’s good for Guyana but on the other hand, the public is blind as to what the government is doing. So to let us know that they are doing the right thing, it (the GTE deal) should be made public.”

Just last week, this publication reported the views of three stakeholders who expressed the need for the contract to be made public before the government attaches its signature. Economist Ramon Gaskin for example said it is urgent to know whether the developer will enjoy more tax holidays in the upcoming deal and who will benefit from the profits of this project.

Meanwhile, Attorney-at-Law Elizabeth Deane-Hughes pointed out that the 2016 Exxon contract was published by the former Coalition administration, which allowed for the flaws to be exposed. As such, she believes that it is important for this new agreement with the same oil company to be properly vetted. Presently, the Government is seeking advisory services and negotiation support on the upcoming gas project that could cost Guyana over US$2 billion. In a Ministry of Natural Resources notice, it was explained that the successful client will be tasked with reviewing the existing legal and regulatory framework for the petroleum sector, integrated policy directives, and concluded deliverables regarding project development.

Also among the successful consultant’s job description is to review the draft Gas Supply Agreement submitted by the Stabroek Contractor, provide detailed legal opinion, comments and advice, support the Ministry’s engagements with the contractor during the negotiations stage and document the review process and outcomes. Consultants have until September 13, 2022 to submit their proposals to the Chairman of the National Procurement and Tender Administration Board (NPTAB).

The Gas-to-Energy project is being streamlined with the objective of generating 300 megawatts of electricity and slashing consumer costs by 50 percent. This means that electricity is likely to be resold to Guyanese for 15 US cents per kilowatt hour. Esso Exploration and Production Guyana Limited (EEPGL)- Exxon’s subsidiary that will be undertaking the project- has revealed that a minimum of 50 million standard cubic feet of gas per day (mmscfd) will be transported through the pipeline by 2024 and that the pipeline would have a maximum capacity of 130 mmscfd.

The project will encompass three major aspects, that is, the pipeline to transport the gas to Wales; the Natural Gas Liquids (NGL) facility that will treat and separate the gas and the power plant to generate the electricity. So far, Guyanese have been told that the pipeline aspect, which is being pursued by US oil major ExxonMobil, will cost around US$1.3 billion. Even this is expected to increase when Exxon closes critical contracts for same.

Vice President Bharrat Jagdeo had shared, “We are doing estimates. We are saying US$1 billion dollars now for the pipeline. That is where we run the numbers. So assuming it comes in at US$900 million, then if it comes in, that will come down; the US$1.6 cents will come down to about US$ 1.4 cents so it comes down lower. If it goes to US$1.1 billion, it may go to US$1.7 cents…that’s just the pipeline part…then if you estimate the power plant and the NGL facility to be about US$700million… that will add another one point something cents per kilowatt hour.”

VP Jagdeo said that if one were to consider estimates for paying for the pipeline, NGL and power plant, it can come down as low as four cents to about five cents per kilowatt hour. He said this would be paid back over 20 years. He was keen to note that while the five US cents per kilowatt hour may be the cost to generate the electricity, another five cents may be lost in the transmission and distribution of the power, which could take the final price for the sale of the electricity to about US$15 cents, after adding five US cents as profits for the company.

 

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