Damning Int’l Report finds Gas-to-Energy Project will leave Guyanese paying for more power than needed

Oct 05, 2023 ExxonMobil, News, Oil & Gas

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– Exposes GPL’s history of inflating forecasts for power demand

Kaieteur News – Despite years of multi-million dollar investments in expansion and upgrades, the Guyana Power and Light (GPL) is yet to bring an end to blackouts. Its inability to provide reliable power generation has  earned it ghastly names over the years from frustrated consumers, one of the colloquial favourites being “GP-HELL.”

Since the discovery of massive amounts of oil and gas in the Stabroek Block situated in Guyana’s deep waters, two governments have floated the idea that the gas resources could be harnessed for electricity to once and for all eradicate power interruptions. During the period 2015 to 2020, the former APNU+AFC government had consulted with several regional and international experts, devising a blueprint for a gas-to-energy project that could produce 188MW of power plus 2,200 barrels of Liquefied Natural Gas (LNG) daily for a price tag of under US$600 million. But that never saw the light of day.

When the PPP/C took office in August 2020, it promised to deliver what its predecessor couldn’t. Before the 2025 General and Regional Election, the PPP/C administration had promised to deliver a gas-to-energy project at approximately US$1.7B. The government has teamed up with ExxonMobil, the operator of the oil-rich Stabroek Block, which is tasked with constructing a massive offshore pipeline structure. That pipeline pegged to cost around US$1.3B, would bring gas from the Stabroek Block’s Liza field onshore and feed into two facilities, a Natural Gas Plant and a 300MW Power Plant, both to be situated at the Wales Development Zone in Region Three. The PPP’s gas-to-energy project is expected to cost approximately US$1.7B but this does not include funds needed to rejuvenate the weary GPL, the designated vessel for channeling this amplified power surge to coastal dwellers.

Stakeholders over the past three years have expressed deep worry about this venture, said to be the largest such undertaking in the country’s history. Many stakeholders contend that the PPP/C’s blueprint for this project is cloaked in mystery and feasibility concerns. Some sections of society even worry that the project could give the country a debilitating taste of bankruptcy.

Echoing the deep-seated fears percolating through the citizenry is the Institute for Energy Economics and Financial Analysis (IEEFA). The US based think tank which focuses on issues related to energy markets believes citizens have every right to be dreadfully concerned about this project. In fact, Tom Sanzillo, IEEFA director of financial analysis previously sounded the alarm on the potential fiscal calamity this project might unleash upon the nation’s coffers. In a concerted effort to shed light on the monumental risks of this initiative, IEEFA collaborated with renowned energy consultant Cathy Kunkel. Their joint findings paint a grim picture, suggesting that the venture may result in an over-saturated grid, churning out electricity that far exceeds the genuine demands of the Guyanese populace. In the ensuing weeks, Kaieteur News will be unraveling the damning findings of the IEEFA’s 33-page report. Today marks the first publication. Stay with us on this gripping journey into Guyana’s power conundrum.

GPL AND INFLATED NUMBERS

When IEEFA’s experts examined GPL’s expansion plans for 2022 and 2023, it was firmly concluded that the state-owned company does not know how to properly estimate the country’s energy demand, or even how to meet same in a practical and affordable manner. In fact, they made the startling discovery that GPL has a history of overestimating energy demand.

Delving deeper, IEEFA officials referenced GPL’s 2023 Development and Expansion Programme. That document forecasts that sales in the Demerara-Berbice Insolated System (DBIS) will grow at an annual rate of 16.4% from 2022 through 2027 and an annual rate of 9.4% from 2027 to 2032. This reflects an overall average annual rate of 12.9%. IEEFA’s report states that this results in a more than tripling of sales from 2022 through 2032.

Although this would represent unprecedented growth, the report states that this sales forecast in the 2023 Development and Expansion Programme represents a reduction over the forecast presented in the 2022 Development and Expansion Programme. IEEFA pointed out that the 2022 Programme’s forecast resulted in a nearly seven-fold increase in sales for the DBIS grid over the same period, between 2022 and 2032, resulting in projected sales in 2032 that were 2.65 times higher than projected in the 2023 programme. This forecast was published in November 2021, and the government issued the request for qualifications for the construction of the 300MW gas plant and NGL facility the following month.

The IEEFA officials highlighted that government took key steps towards the building of the plant based on GPL’s 2022 Development and Expansion report of future electricity demand that was significantly reduced the subsequent year. Despite GPL publishing a 2023 forecast that cut projected sales for 2032 by more than half, the report said the Government of Guyana did not revise its plans for the gas-to-energy project. IEEFA was also keen to highlight that in 2020, an independent consultant to the Guyana Government provided 20-year load forecasts of 3% per year and 5% per year, far lower than either of the recent forecasts provided by GPL.

Importantly, the IEEFA report states that this is not the first time GPL has been found overestimating its energy demand. “Even before ExxonMobil’s major discovery of offshore oil in Guyana, GPL had a history of overestimating future electricity demand. Figure 4 (attached to this story) shows previous GPL forecasts of electricity demand versus actual demand,” the report said.

In addition to the gas plant, the IEEFA report notes that GPL is planning several new power generation projects in the DBIS system. GPL’s plans include 85 MW of new oil-fired generation in 2023, 25 MW of utility-scale solar projects in 2024 and 2026, and the 165MW Amalia Falls hydropower project around 2030. GPL’s current generation capacity in the DBIS system is approximately 191 MW.

Adding in all of GPL’s proposed new capacity, including the proposed 300MW gas plant, the report finds that Guyana would be saddled with an oversupply of power that it must pay for. The report added that the new natural gas plant is highly unlikely to operate at full capacity in its initial years of operation, if ever.

Because no details have been released on the financial agreement between ExxonMobil and the Government of Guyana for the delivery of natural gas to the plant, IEEFA’s report states that it is also unknown what contractual risk the government is assuming if it does not use all of the 50 million standard cubic feet of gas per day (MMcf/d) that Exxon is building the pipeline to deliver. This is a critical grey-area IEEFA officials urge Guyanese to demand greater clarity on.

BACKGROUND ON GAS PROJECT

The PPP/C’s plan for a gas-to-energy project entails partnering with ExxonMobil Guyana Limited to construct a massive 218 km offshore pipeline structure that would bring gas from the Stabroek Block’s Liza field onshore and feed into two facilities, a Natural Gas Plant and a 300MW Power Plant, both to be situated at the Wales Development Zone.

The 12 inch pipeline being constructed by Exxon will have the capacity to transport 50 million cubic feet per day (50 MMcf/d) from the offshore Liza field, and will be able to deliver a minimum volume of no less than 10 MMcf/d. The Government of Guyana and US consortium, LINDSAYCA/CH4 on December 13, 2022 signed the contract for the construction of the integrated Natural Gas Liquids Plant and the 300-megawatt (MW) combined-cycle gas turbine (CCGT) power plant at Wales, West Coast Demerara (WCD), Region Three. The historical signing of the contract for the US$759 million project took place at the Office of the President, Shiv Chanderpaul Drive.

In January 2023, President Irfaan Ali witnessed the signing of a contract between the Guyana Power and Gas Inc. and Engineers India Limited (EIL) for the provision of Consultancy Services for the Wales Natural Gas Liquids (NGL) facility as well as the 300 megawatt (MW) power plant. That contract is pegged at US$22,143,190.

The consultancy is for the Consultant to assist the Government of Guyana through the Gas to Energy Task Force in the design review, construction, supervision and general project management of the development of the integrated plants, and contract administration throughout the project implementation process and thereafter during the defects liability period. Government has said project generation costs, taking account of payment for the pipeline, operations and maintenance, and capital cost recovery will total less than five US cents per kilowatt-hour.

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• GP-HELL, Guyana Power and Light, Guyanese, Int’l Report, Liquefied natural gas

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