While identifying Clonbrook, Mahaica on the East Coast of Demerara, as the best location for bringing natural gas to shore for domestic use, a 2017 desk study done for the APNU+AFC government put the cost of doing this at US$304 million at least.
“The Clonbrook landing site is the optimal landing site for the 30 MMcfd [million cubic feet per day] pipeline,” the desk study of the “Options, Cost, Economics, Impacts, and Key Considerations of Transporting and Utilizing Natural Gas from Offshore Guyana for the Generation of Electricity”, United Kingdom company Energy Narrative, stated. It added that this option would cost US$304 million, including US$165 million, for the offshore pipeline, US$43.5 million for a compression station and separation plant onshore, and US$95.4 million for onshore pipelines to bring natural gas to power stations at Vreed-en-Hoop, Kingston, Garden of Eden, and Canefield.
Comparing the cost to seven other locations, the study notes, “The offshore pipeline is estimated to cost between US$165 million and US$270 million to build, depending on the size and landing site location. On shore compression and separation of the LPG is estimated to cost between US$43 million and US$114 million. Finally, distributing the natural gas to the various electricity generation location is estimated to cost between US$95 million and $127 million for the various proposed landing sites.”
The feasibility of bringing natural gas to shore is again the centre of public debate after it was revealed last month that ExxonMobil had flared over 9 billion cubic feet of natural gas and former petroleum advisor Jan Mangal said it could have been avoided if the gas was brought to shore.
“You have all of this natural gas and it is being flared for lack of a pipeline project. It was very important that the pipeline project be set up and we did have such a plan. Exxon had a team in Houston that I used to meet …Exxon was prepared to move forward but the slowness was on the government’s side,” he has said.
He said, too, that ExxonMobil had already established a team to discuss the project and the Inter-American Development Bank (IDB) had said that it would fund a feasibility study of this country’s coastline to determine the most suitable location for the landing of the pipes and setting up of a power station.
“I and the IDB were pushing for a comprehensive feasibility study of the whole coastline so as to pick the best location for the landing of the pipeline onshore. This would be the location for the gas plant and the power plant would be nearby. But the Ministry of [Public] Infrastructure, they were against a comprehensive feasibility study. It seemed they just wanted to pick a location, and they proposed Mahaicony and another site just across the Demerara River from Georgetown. I was very suspicious of the Mahaicony option because it made no sense to me and was a swamp,” Mangal had told this newspaper.
“I was always worried about the resistance to do a feasibility study because the choice of locale needs to be based on technical and developmental factors and not driven by politicians. The IDB was going to pay for it, they [the government] pushed back and I don’t think it was ever done,” he added.
‘Worthless’
Civil society activist and attorney Melinda Janki has, however, argued that this country’s gas has no market value and that several studies, including those from the IDB, would support her claim.
Janki, who says that she has worked at the top level with oil and gas companies and has years of experience in the field, reasoned that if it were the case where this country had only natural gas wells and not where it is associated with oil within reservoirs, as in the case here, the situation may have been different. As a result, she believes that such a move is not only poor economics but it is not good for the environment, given that this country is committed to total renewable energy by 2030.
“The IMF, the World Bank, the IADB, the European Investment Bank, leading economists (e.g. former World Bank Chief Economists Lord Stern and Joseph Stiglitz,), the Institute for Energy Economics and Financial Analysis, and a host of other financial and industry experts can all give you excellent reasons why Guyana should not touch gas,” she said.
“The ‘associated gas’ is worthless. Esso would sell it if Esso could get money for it. ExxonMobil posted a loss earlier this year; they need money. But nobody wants to buy the gas. Last year, the Inter-American Development Bank concluded that Latin America and the Caribbean is second only to the Middle East in un-burnable gas [and oil]. Guyana’s ‘associated gas’ has no market value. It is already a stranded fossil fuel asset. Guyana should leave the gas right where it is – as Esso’s problem,” she added.
According to Janki, the gas is not just worthless, it costs Exxon money. “Under the Environmental Permit, routine flaring is prohibited and Esso has to re-inject the gas that they don’t use or sell. Re-injection requires the right equipment. It costs money. Esso has flared 9 billion cubic feet. Guyana should enforce the environmental permit, not subsidise Esso’s production by taking worthless gas. To get the gas, Guyana would have to build a pipeline and other infrastructure. What will that cost Guyana? Hanging H, a pipeline construction company, estimates about US$7.65 million per mile on land. Offshore may be more. The gas is about 120 miles offshore. What return will Guyana get for investing about US$1bn in a pipeline? Investment decisions must be made using solid financial analysis, not the uninformed assumptions of any individual,” she reasoned.
“Who is going to use the gas? A World Bank report from 2017 says Guyana has little or no gas market. Last year the IMF advocated a carbon tax of up to US$70 per ton. They admitted that gas prices would increase by over 70% and economic activity would decrease. Gas will not provide cheap electricity or the free cooking gas that Raphael Trotman promised in January 2018. Guyana should take heed of market risks not follow pipe dreams,” she added.
‘Explore’
In response to Mangal’s comments, the Ministry of Public Infrastructure (MPI) provided a chronology of events pertaining to the proposed gas pipeline. It said that in March, 2018, a feasibility study was initiated by Energy Narrative to look at technical and commercial aspects of the proposed natural gas project as an update to the desk study completed in 2017, which included components such as a natural gas pipeline, LPG separation plant and power generation infrastructure.
“This full feasibility was commissioned to provide an overview of the project using further developmental data that had been gathered to date,” MPI said.
It noted, too, that as an offshoot to this feasibility study, a technical ‘Gas to Power Study’ Expression of Interest was advertised by the IDB for consulting services for a technical and economic feasibility study for the development of natural gas use in electricity generation in Guyana). MPI said that this was followed by a Presentation to Cabinet by the Working Group on March 20, 2018.
Following this presentation, according to MPI, permission was granted to continue to explore further the most suitable sites identified the report.
The IDB, when contacted, told the Stabroek News that it has assisted the Government of Guyana in developing a strategy for the optimal use of indigenous natural gas.
“The objective was to support a pre- feasibility analysis to evaluate Guyana’s gas to power options, considering the possibility of bringing 30 to 50 million standard cubic feet of natural gas per day to a generic location on shore. The study included the type of turbines to be used, timeframes, and additional associated transmission infrastructure,” the bank stated.
“On a separate project, the Bank provided technical support and worked in close coordination with the Government of Guyana to analyze whether associated gas could be brought onto Guyanese shore via pipeline, then used for power generation,” it added. The IDB explained that it was important to highlight that natural gas is an associated fuel in the oil production process and its main use would be reinjection into the well for oil extraction.
But it said that Guyana getting its own energy source for electricity generation would reduce its reliance on the importation of fuels, thereby allowing for the diversification of Guyana’s energy matrix.
Larger volumes
“The study was done with information available at that time, based on the 30-50 million standard cubic feet per day scenarios for power generation mentioned above. It also considered the possibility that larger volumes of natural gas could be transported to shore in the long term. The study also included a natural gas liquids separation plant and a liquefied petroleum gas production facility,” the IDB said.
“In parallel, the Bank also funded a study aimed at reviewing the regulatory framework for further developing renewable energy production in the country as well as to use technical modeling and simulation tools to build scenarios for renewable energy expansion together with indigenous natural resources. It is important to note that this last study is usual practice in the power sector. They have the objective of exploring different power generation sources and projects available in the country, comparing cost efficiency, while taking into consideration present and future demand,” it added.
This newspaper asked the IDB for a copy of the report on the study and it informed that it has sent a letter to Minister of Public Infrastructure David Patterson, indicating that reports will be made available as per the access to information policy of the Bank, unless they object.
“This is standard practice. They have 30 days to respond if they do not object, we consider them public and it will be available on our website,” the IDB said.
Patterson shared with this newspaper the first nine pages of the 80-page 2017 desk study, the primary objective of which was to determine if offshore natural gas can be used to reduce electricity costs in Guyana.
The nine pages included the cover page, table of contents, the executive summary and part of the introduction.
The recent studies were not shared.
In its 2017 study, Energy Narrative said that the primary objective was addressed through three broad sub-questions: What are the associated technical and operational challenges of using the natural gas? What are the associated costs and benefits of producing electricity with natural gas? What is the long-term strategic fit between natural gas and renewable energy development? According to the firm, the analysis to the three sub-questions was divided into twelve components, each of which was addressed in the Final Report.
The Executive Summary states that as the most central of the three proposed landing sites, Clonbrook balances the costs to deliver natural gas to both ends of the power grid, enabling a more balanced generation system and supporting new capacity additions across the system.
“As a result, landing the natural gas in Clonbrook provides the lowest overall cost of electricity among the three options. The levelized cost of electricity for each option shown below includes a capital component, fixed and variable operations and maintenance (O&M) costs, and fuel costs. The capital and O&M costs are identical for each option, such that the variations in electricity price directly reflect differences in the delivered price of natural gas for each option,” the study states.
This analysis in the study assumed a wellhead price of $0.00 per MMBtu but noted that the actual price per million British Thermal Units (MMBtu) for the natural gas molecule will be negotiated between the Government of Guyana and Exxon affiliate EEPGL, and may be higher or lower than the estimated price used in the analysis.
“Rising oil prices and a flat cost for natural gas increases the estimated savings for natural gas fired power generation from US$50 per MWh in 2022 to nearly US$80 per MWh in 2035. Reducing the projected oil price forecast by 20% in the Oil Price Sensitivity case still results in an expected savings of US$31 per MWh in 2022, rising to US$54 per MWh,” the report stated.
In April of 2018, Patterson had said that the studies had confirmed it was feasible to bring the gas onshore and that it would work out to about US 10 cents per megawatt hour.
“It has been confirmed that it is feasible. It has been confirmed that it will be an absolute benefit to the country, it has been confirmed, and I can say this, I will go out on a limb and say- the numbers are all sub US 10 cents per megawatt hour,” he had told attendees at a GPL reception to welcome that company’s new Chief Executive Officer, Albert Gordon.
GPL has already been procuring generator sets that could be fueled with heavy oil and natural gas.
The study told government that natural gas is a strategic fit with this country’s renewable energy goals.
“Guyana relies on imported oil for the majority of its energy needs, including imported fuel oil for power generation. The current strategic plan states that Guyana will move closer towards 100% renewable power supply by 2025, conditional on appropriate support and adequate resources. This aspirational transition includes exploiting the country’s considerable hydro power potential,” it said.
“While large-scale hydro power is a significant opportunity in the medium to long term, and other renewable energy sources are available in the interim, natural gas presents a new transition fuel opportunity that could reduce electricity costs and promote stronger economic growth. The timing and funding of hydro-electric power is uncertain, whereas the immediate need for a cheaper source of electrical power is now,” it added.
