Dear Editor,
I refer to Mr. Fitzroy Fletcher’s letter in yesterday’s Stabroek News entitled “The country must pause its headlong rush into this gas to energy project and consider its options carefully” and wish to make the following comments.
1. There is not enough information in the public domain on how the cost of the pipeline was arrived at to make the assumption that the project is not feasible.
I say this because we have no knowledge of how ExxonMobil arrived at the cost of US$1.3 Billion dollars for a 200 km pipeline 12 inches in diameter. Using data published in May 2022 in The Palgrave Handbook of International Energy Econo-mics pp 23–57, “Unit investment costs of international pipelines can vary in a wide range from $30k to over $200,000/km/inch.” Using the highest cost of US$200,000/km/in and multiplying that by 200 km and 12-inch diameter gives a cost of US$480,000,000. Of course, this cost is very close to the Energy Narrative 2017 estimate of US$460 Million and reinforces the claims that ExxonMobil costs are exorbitant.
There is no information in the public domain of how Exxon-Mobil arrived at this figure because they have not made public the bids or the detailed designs for the pipeline. How-ever, at some point their accounts for the construction of the pipeline must be audited and we will know the true cost. The only plausible reason that I can think of for this high cost of US$1.3 billion is that ExxonMobil has Front-End Loaded all their projected investment costs for constructing the pipeline, including the cost of financing, in their estimates. Front-end loading (FEL) is the process for conceptual development of projects in processing industries such as upstream oil and gas. This involves developing sufficient strategic information with which owners can address risk and make decisions to commit resources in order to maximize the potential for success. If this is the case, then the US$1.3 billion is the total cost of the pipeline and it already includes the cost of financing and there is no additional 10% interest.
2. We have no idea what, if any, will be the charge for the Natural Gas supplied by ExxonMobil.
It is my opinion that instead of allowing ExxonMobil to flare the gas and contaminate the environment, we should pipe the gas to shore for the benefit of the Guyanese people, while at the same time reducing the environmental impact currently caused by GPL burning high sulphur heavy fuel oil. My position is that the Natural Gas should be supplied free of charge.
We now know that the cost of the 300 MW combined cycle power plant would be US$800 million and that the Government of Guyana would be financing the construction. This means that there would be no additional cost of financing since the money is coming from oil revenues.
Based on the assumptions above, the total cost of the project would be US$1.3 billion for the pipeline plus US$800 million for the power plant, which makes a total of US$2.1 billion and that already includes financing costs.
Using the total cost of US$2.1 billion and amortizing that over 25 years, one can calculate the cost per kW-hr using break-even analysis as follows.
Break-even Analysis
• Amortizing US$2.1 billion over 25 years gives a cost of US$84 million per year.
• Dividing US$84 million by 365 gives a cost of US$230,137 per day
• Dividing US$230,137 by 24 gives a cost of US$9,589 per hour
• Multiplying 300 MW times 1000 kW times 70% capacity factor gives an average electricity production of 210,000 kW per hour.
• Dividing US$9,589 per hour by 210,000 kW gives us a cost of US$0.046 per kW-hr.
Therefore, the break-even cost of electricity would be US 5 cents per kW-hr.
If you add 20% for operations and maintenance that would be US 1 cent
If you add 50% for GPL transmission and distribution plus losses that would be US 2.5 cents
The total cost of electricity would therefore be US 8.5 cents per kW-hr
This means that the cost of electricity can be halved if sold for US 10 cents or G$20.00 per kW-hr.
Editor, the above analysis clearly shows that the Gas to Shore project would be feasible if all of my
assumptions are correct. All we need is for the Government and ExxonMobil to come clean with the
Guyanese people and make all the relevant information on this project available to the public.
Yours truly,
Tara Singh
