Jagdeo says Gas-to-Energy project still feasible despite cost doubled

Dec 29, 2022 News

Kaieteur News – Vice President Bharrat Jagdeo said the People’s Progressive Party (PPP) G overnment is confident that even though the cost of the controversial Wales Gas-to-Energy (GTE) project has doubled, it is still feasible with electricity still to be generated at the initial estimated cost.

At his most recent Press Conference, hosted at the Office of the President, Jagdeo was asked about the project’s viability, given the increase in cost.

Vice President, Bharrat Jagdeo, during his most recent Press Conference responding to queries from the press

Back in 2018, the Inter-American Development Bank (IDB) had partnered with the State to conduct a feasibility study of the planned natural gas pipeline. The primary objective of the study, which was executed by ‘Energy Narrative’ for US$70,000—an international entity that provides strategic market analyses and advice was to determine the overall feasibility of transporting natural gas from offshore Guyana, building a Natural Gas Liquids (NGL) separation plant and a Liquefied Petroleum Gas (LPG) production plant to market the liquids from the natural gas stream, as well as building a new electricity generation station to use the remaining dry natural gas.

Notably, a table was used in that report that was sourced from ExxonMobil in which the oil company said the pipeline would cost US$478 million. Four years later, Exxon estimates that the structure could cost Guyana US$1.3 billion.

Jagdeo is however confident that the estimated price of electricity from this project will not change. He told Reporters, “We ran the simulation when we came up with between four to five cents per kilowatt hour (KWH) that would be the total cost of generation- we ran it at the new number so a higher figure than what was there in the period when (or) pre-inflation…so we are very confident that that will not change the cost (to generate electricity) per KWH- between four to five cents, which we will then sell at 15 cents per KWH. Now it is being sold between 30 to 35 cents per KWH.”

In arguing his case, he added that if the Government had used the “old figures” the cost to generate electricity could have been less than the estimated four to five cents. Not only that, but he said, “that gives us a lot of room there still because we are selling (electricity) at 30 (to) 35 (cents) now… and then as I said before, the sale of the liquids will then allow us to pay back for the infrastructure so effectively, the power comes in to us free basically.”

According to the Vice President, “If we can pay for the operation and maintenance cost and the capital expenditure from the sale of the liquids, then really we are getting the power and the gas comes in for free- we are getting the power for zero effectively.”

Publisher of this newspaper, Mr. Glenn Lall, believes the project will amount to a white elephant given the astronomical increase in cost. He reasoned, “No feasibility study, no Press Conference on this subject matter, price doubled and it is still feasible; Jagdeo plug that feasible out of thin air. That’s another white elephant that will hang Guyanese for the so-called cheap electricity.”

A chart used in the feasibility study of the Wales Gas-to-Energy project that estimated the total upstream and pipeline cost to be US$478 million. Today, the cost of the pipeline alone is now estimated to be US$1.3 billion

In October, an Engineer with over 50 years of expertise challenged Vice President Jagdeo’s figures as it relates to the cost to generate electricity via the US$2 billion gas project.

In the absence of any new feasibility studies for the venture Jagdeo had said he “estimates” the project to generate electricity and distribute same at US$0.15 cents per KWH.

He explained during a Press Conference in June 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. This could take the final price for the sale of the electricity to about US$0.15 cents, after adding five US cents as profits for the company.

However, Mr. Fitzroy Fletcher, a Jamaica born Engineer does not agree with these “estimates” as provided by the VP. In fact, the Specialist, who graduated from the University of the West Indies in 1969 and later achieved an MBA from the University of Toronto in 1974, has provided a detailed analysis of the project explaining that its intent of lowering electricity costs by 50 percent will not be possible considering the new developments.

In an interview with this newspaper, Fletcher noted that ‘Energy Narrative (EN)’, the consultancy firm that conducted a pre-feasibility study for the gas project, concluded that the pipeline and NGL plant would cost an estimated US$450 million and the Guyana Power and Light Inc. (GPL) would generate electricity at approximately 8.5 US cents per KWh, which would be about a 40 percent reduction on GPL’s generating costs when the world market price of crude oil was approximately USD60.00 per barrel.

Now that the cost of the pipeline alone has increased to US$1.3 billion, Fletcher reasoned that this mammoth increase, would necessarily drive up the cost of gas supplied to GPL, and consequentially, place the viability of the project in jeopardy.

To this end, he pointed out, “The Government’s estimates that with the latest pipeline cost, the cost of generating power by GPL would be less than the EN estimate of 8.5 US cents per KWh, and be as low as 4 or 5 US cents per KWh, appear to be figures drawn out of a hat, and wishful thinking.”