Guyana urged to avoid oversupply of gas when US$900M project comes onstream

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An artist’s impression of the natural gas plant

 

Using the examples of countries like Ghana and Trinidad and Tobago, economist and former Director of Economics at the Caribbean Development Bank (CDB), Dr Justin Ram has warned Guyana to guard against the oversupply of gas to the market when the gas-to-shore project comes onstream.

Dr Ram was at the time fielding questions from the media during an OilNow-organised webinar. According to Dr Ram, such is the magnitude of investment needed for the gas-to-shore project, that not having enough industries to take off the energy would be detrimental.

The economist gave the examples of Ghana and T&T, in urging that Guyana’s Private Sector be integrally involved in making the gas-to-shore project an overall success. He noted that if Private Sector money was involved, the fiscal burden could be reduced.

“With respect to two examples, I would say look at the case of Ghana. That provides a useful example for us, with respect to an oversupply of gas and so we have to be mindful of that. I think to avoid that, it’s really critical that Private Sector investment is part of this. Because if you’re putting private money in this, the risk management approach is going to be very high.”

“The other example, I would say, is to look at Trinidad and Tobago, which built a very large gas-to-power plant in south of the country. That gas-to-power plant was supposed to have provided electricity to an aluminium smelter. So, of course, you could imagine there was going to be significant demand for electricity. But what transpired is that the aluminium smelter was never built.”

This is likely a reference to the Alutrint aluminium plant in La Bera, Trinidad, the construction of which was halted back in 2009 owing to a court order. At the time, the majority State-owned US$3.3 billion aluminium smelter plant was blocked due to environmental concerns, although current T&T Prime Minister, Dr Keith Rowley has hinted previously that the project could make a return.

Additionally, Dr Ram explained that there was a take-it-or-pay-for-it contract in place for the gas-to-power plant that was supposed to supply energy to the smelter plant. This means that even though all the electricity was not being utilised, it still had to be paid for.

“Who has to pay for that? Well, it’s the owner of the grid and that is a publicly-owned entity. So, one has to look at that as well. So, those two examples provide some useful framework. And that is why I’m saying, it’s very important to do proper demand and supply analysis for this. Because that would have very serious implications for the viability of the project. And you really don’t want a situation where you’re generating too much electricity,” Dr Ram said.

Even while it was planning the gas-to-shore project, the Government was looking at alternative uses for the excess gas which would become available. Natural Resources Minister Vickram Bharrat has told media operatives that while Government was focused heavily on energy generation in the gas-to-energy project, the excess natural resource produced represented a significant figure and could be converted to another use.

The gas-to-shore project will see gas from the Liza Field offshore Guyana being pumped onshore to generate power. The main objective of the initiative is to transport sufficient gas from the Stabroek Block’s petroleum operations to supply some 200-250 megawatts of energy to the national grid, leading to a significant reduction in electricity costs.

The project will be located in the Hermitage section of the Wales Development Zone (WDZ), with approximately 150 acres allocated for it. It is expected to come onstream by late 2024 and will likely cut electricity costs by more than half. Importantly, there are plans for an industrial park comprising industries that could use gas, steam, and/or electricity.

The Government has already invited interested parties to invest in its US$900 million gas-to-energy project. The pipeline, which would end in the WDZ, will measure some 225 kilometres from the Liza field, where the natural gas is produced.

The project will see the establishment of a gas processing plant (GPP) and a natural gas liquids (NGL) facility, capable of producing at least 4000 barrels per day, including the fractionation (or separating out) of liquefied petroleum gas (LPG).