Guyana's VP Jagdeo signals likely increase in cost of US$900M Gas-to-Shore project
By Kaieteur News
Petroleumworld 11 05 2021
Touting the natural gas to be had from the Stabroek Block’s Liza I and II oilfield developments as transitional fuel towards the ultimate goal of 100 percent renewables, Vice President, Dr. Bharrat Jagdeo this past week signaled a likely increase in the cost of project already pegged at some US$900M.
Dr. Jagdeo gave the assertions during a press engagement on Monday at the Arthur Chung Conference Centre (ACCC), where he told reporters that despite prevailing global circumstances, government cannot hold back development and, as such, is forging ahead with the project despite likely increases in cost.
According to the Vice President, when factoring in prevailing global conditions, the prices for key commodities needed for the project have increased. He specifically pointed to the fact that the price of steel, for example, has been escalating on the world market.
Conceding, “…it’s a bad time to bid anything,” Dr Jagdeo was adamant however, “we can’t slow down the development” and that “we have to proceed,” with the Gas to Shore initiative.
He used the occasion to seek to assure that all expenditure for the project will have to go through a bidding process and, as such, would be transparent.
According to Vice President Jagdeo, the Guyana Government has since also made that clear to Exxon, and that it intends to be involved in selecting contractors for the project.
He was at the time defending Guyana’s exploration of its oil and gas resources, in addition to the pursuit of a Natural Gas Power Plant, instead of pursuing a grid that is fully powered by renewables, such as solar, wind or hydro.
Defending the Government’s position, Vice President Jagdeo said the world has come to realize that the growth in demand for electricity far outstrips the growth in supply of renewable energy generation capacity and, accordingly, natural gas can serve as a transitional fuel.
In fact, the Vice President said Guyana supports a global carbon price, saying “if you have a strong carbon price, then it gives a greater incentive to the faster introduction for renewable energy.”
Arguing in defense of the gas project and the production of oil from Guyana, Vice President Jagdeo pointed out that, in the near future, there would still need to be a significant amount of infrastructure put in place and cited as one example charging stations that would be required for electric cars.
Adamant that you can’t just stop importing combustion engine vehicles that use fossil fuels, such as gas and diesel, Jagdeo argued, “…you have to put in infrastructure; instead of gas stations you would need charging points across the country.”
According to Vice President Jagdeo, Guyana cannot align or set its targets with those of the developed world since as a country, “we have to transition.”
He told those present at the ACCC that, currently, 95 percent of Guyana’s electricity demand is being met through Heavy Fuel and Diesel and, therefore, natural gas should be seen as an option towards decarbonising the planet, however transitionally.
Pointing to the continued demand for oil and gas globally in the coming decades, Vice
President Jagdeo was adamant, it is unfair for Guyana to park its oil sector, while over the next 30 years the world will still be producing 100 million barrels per day.
In recent months, there has been increasing criticism and calls for justification with regards the US$900M price tag which Jagdeo is now signaling could likely increase.
Former Minister with responsibility for the project for some time under the former Coalition Government, David Patterson, has publicly questioned the current administration’s price tag for the project repeatedly saying it was ‘money for the boys.’
Only recently, Patterson in a public posting said, “my records indicate that in 2017, Exxon proposed to construct a pipeline for between US$400M – US$500M inclusive of onshore processing and an LPG (Liquefied petroleum gas) plant.”
He charged that “without any explanation, justification, or further studies, the cost for the exact same project by the exact same company has risen to US$900M.”
Patterson at the time had expressed alarm that the project is already suffering from massive cost overruns, even before a single piece of work or study has been completed for same.
International Energy Analyst and Co-Director of Americas Market Intelligence (AMI), Arthur Deakin, had also posited that the massive gap in costs under the two administrations is already a cause for concern, while adding that there needs to be consensus on such a crucial matter before any work commences.
Echoing similar sentiments was an independent United States think-tank, the Centre for Public Integrity (CPI).
In the cases the global watchdog—CPI—examined, it found that cost overruns on natural gas projects “are the norm rather than the exception, often by 45 percent or more.”
In one of its analytical papers on this subject, CPI noted that initial estimates of capital costs for large petroleum projects are almost never correct. It said this has happened in Australia, Mozambique, Papua New Guinea, and Angola.
Taking the cases it examined into account, the American think-tank urged countries, particularly new producers like Guyana to be wary of the costs for such projects, as the evidence shows they are often times inflated.
In Guyana, the Government says that the planned gas-to-energy project is expected to cost US$900M. But there is no guarantee that this would be the final cost. The requisite geophysical and economic studies are still being done for the project. Be that as it may, Vice President, Dr. Bharrat Jagdeo, previously gave assurances that the project costs would not exceed US$1B.