Guyana to pay Exxon US$55M annually for 20 years to clear pipeline debt

Feb 16, 2023 News

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…cost to generate power now pegged at US4.2 cents/KWh

By Davina Bagot

Kaieteur News – The Government of Guyana (GoG) will be paying American oil major ExxonMobil US$55 million annually for 20 years to clear the costs associated with developing a 12- inch pipeline that will be used to transport natural gas from the Liza Fields offshore to the Wales development site.

The pipeline is a component of the Gas-to-Energy (GTE) project being developed by government and Exxon, through its subsidiary, Esso Exploration and Production Guyana Limited (EEPGL). While the oil company will be funding the investment costs of the pipeline, the GoG will be building a Natural Gas Liquids (NGL) facility to treat and separate the resource, as well as a 300 megawatts (MW) power plant to generate electricity to power the national grid.

Head of the Gas-to-Energy (GTE) project, Winston Brassington on Wednesday gave an update on the venture during day two of the International Energy Conference, being hosted at the Marriott Hotel in Georgetown. The event is being hosted this year under the theme ‘Harnessing Energy for Development’.

It was only last week that the President of ExxonMobil Guyana, Alistair Routledge said that the final cost of the pipeline has not yet been determined; however, Brassington told delegates of the conference that the pipeline cost will be US$1B. He explained that when the US$1 billion is repaid over a period of 20 years, this amounts to a US$55M debt for the country each year.

Brassington even sought to share the formula used by the state to arrive at this cost. He explained, “That US$55 million is the amortized cost of US$1 billion for 20 years at a discount rate. When we convert that to an equivalent price of gas, so that conversion, we took the 50 million, we took $2.40 per mmbtu by 365 days by 1.26 which is the conversion of the mmbtu to mcfk and that’s how we came up with the US$55 million.”

Generating cost

According to Brassington, the project will generate electricity for the country at a mere US4.2 cents. This new estimate is lower than US5 cents Vice President Bharrat Jagdeo had initially estimated. The GTE Project Head said in 2022, Guyana generated its electricity through Heavy Fuel Oil (HFO). The cost to do this however was pegged at just under US20 cents per Kilowatt hour (KWh). He said the cost to generate power with HFOs last year was US15.8 cents. This however was not the final cost to distribute the electricity as the Guyana Power and Light Inc. (GPL) also factored in its operational and capital expenses recovery which pushed the cost to US20 cents per KWh.

“Our actual selling price last year (or) what customers paid is about 24 or 25 cents but our real cost because GPL today is subsidized…our real cost is about US30 cents so it’s very important to fix this problem,” he insisted while hailing the GTE project as the solution.

To this end, Brassington said, “Should we look at what our projected cost for generation in 2026 would be, we are looking at an all-in cost of about US4.2 cents for kwh. We said last year when we had the signing of the Heads of Agreement that the cost of generation would be less than US5 cents. Well, here it is broken down. We now know firmly what the EPC (Engineering, Procurement and Construction) cost would be, we know what we are paying Exxon, we convert that so the equivalent fuel cost based on what we are paying Exxon for the 50 million (cubic feet of gas per day) is a little under US2 cents.”

He added, “The O&M cost (operation and maintenance) we estimate at .8 of one cent and the capex recovery 1.4 cents so 4.2 cents per KWh for generation versus a little under US20 cents for last year.”

Expected savings

Brassington said in 2022 GPL expended approximately US15 cents on HFOs to generate 1KWh of electricity. He said if one were to consider the 300-megawatt output from the power plant using gas, if government had to pay for fuel to generate electricity, this would have cost almost US$400 million.

Additionally, he also pointed out that Guyana will benefit from the Natural Gas Liquids that will be produced. In 2021, the average price to import propane and butane- the gases used for cooking- was pegged at US$100 million. This however increased to US$150 million in 2022 he said, pointing to the benefits Guyana can enjoy.

According to Brassington, “it is an extremely good deal.”

He said Guyana will paying US$55 million and at the same time is poised to receive value about 10 times greater. “Even if we were to use lower prices for the NGLs and for the fuel, we still (are) getting multiple returns from this and of course the transformational impact this can have on Guyana cannot be understated,” he said.

Recovery of capital

Offering a financial breakdown on how the various aspects of the GTE project will be repaid, Brassington in his half hour presentation explained that the country will pay an additional US$51 million annually for 20 years to repay for the NGL and power plant infrastructure.

He said that the US$759 million for the two facilities will be repaid over a 20 years period at a three percent interest rate. This amounts to US$51 million Brassington explained.

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• Debt, ExxonMobil, gas, pipeline, repay

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