Dear Editor,
An economically sound Wales gas-to-energy (WGTE) would be a most satisfying development for Guyanese. It is one that holds the potential to give some material and psychic relief to citizens and commerce, and nothing could be more welcomed. But, as much as I am trying to squeeze some of the underpinnings of the WGTE to match present day reality, and reasonable future projections, significant doubts continue to surface. This is based on an analysis done by the same engineer, Guyanese-born, now Jamaican-based, Mr. Fitzroy Fletcher. I focus mostly on the pipeline segment of the WGTE.
According to the latest numbers, the overall cost of the pipeline being constructed/laid by Exxon has increased from US$450M (other times, US$478M) to US1.3B. It is triple the original figure, which means that prior assumptions/calculations about cost to GPL and price of energy to the public, ultimately, is seriously stressed, cannot hold. Something has to give on the issue of cheap electricity, but there has been mostly silence in this regard. Surely, I dare to inquire that it can’t be as championed before, since we are now talking of a 300% increase in the total cost of laying the pipeline, which I point out is subject to market conditions, none of which looks on the favourable, meaning cheaper, side.
Also, Engineer Fletcher noted that the IDB funded Energy Narrative (EN) study used the then relevant pipeline price of US$450M in its calculations, and concluded that the cost of energy supplied to GPL would be US$3.50 per million Btu (British thermal unit). However, when current pipeline costs, 10% cost of capital, a 25-year pipeline lifespan, and 65% normal average generating costs are all factored into calculations, the cost of energy to GPL would more than double from US$3.50 per million Btu to US$7.80 Btu. This crushes, and is at severe odds with, the Government’s estimates that hover around 0.06 cents per kilowatt hour to GPL.
Interestingly, the EN study estimated KW cost to GPL to be 8.5 cents, which means that the 6 cents per KW was already on the highly optimistic side. It should also be of interest that the 10% cost of capital mentioned earlier is below EN’s recommended 12%, another kick upstairs to overall cost, and not an insignificant one. Further, as I wrote previously, the initial figures of US$60 per barrel of oil fed into the EN’s calculations no longer holds. It could be doubled, if not higher, given the sounds coming out of major forces in the OPEC+ group. Of course, some geopolitical or other development could send oil prices south, but that looks fairly remote at this time, despite the known volatility of the commodity. Neverthe-less, because we need this cheaper energy so urgently, I stick to within a narrow band within which oil prices range currently, that is, between US$90-US$100 per barrel.
I admit that this is unrealistic in view of strengthening oil market outlooks. But even when this unrealistic lower current number (US$90-US$100) is employed, the government’s estimate of GPL’s probable future energy cost comes under increasing distress. Editor, I have deliberately left out some elements from this writing to keep things simple. These include elements such as GPL’s capital investment cost, its operating and maintenance costs, and new plant utilization. There is also that matter about Exxon’s transportation costs of the gas to the Wales facility. We haven’t heard anything about that, as yet; plus, there is also uncertainty regarding what is the ‘charge’, if any for the gas itself supplied by Exxon. These are all outside of what is shared today, and when taken together can significantly increase the cost of energy to GPL, and finally to the consuming public.
Having said all the above, it was suspected that Exxon was already moving ahead with its arrangements in the form of contracts signed with European vendors for products and facilities related to its offshore preparations for the WGTE project. This took another more tangible step a few days ago, when Freidrich Krispin, Exxon’s Project Manager, informed the audience at the Guyana Basins Summit that pipeline construction related to the project commenced six months ago. As much as I hate to say this, there is no other option: this WGTE is over; it has gone past the point of consulting and talking and disputing and quarreling. The plane has departed, and it has proceeded to the point of no return. That is, unless the Vice President raises his hand, like a traffic cop, and say stop. No further movement. I do not think that even he can do that, many things considered, none of which is good.
Last, like everybody else, I hail the dream of cheap energy. I think we now must resign ourselves to something else, which ranges from price shock to debt load to overall utility. We may not get anything resembling cheap, but I am hopeful that we get a reliable supply. I can dream, can’t I? The problem is that anything that the Vice President has touched in this country has led to great disappointments to his countrymen (and women), and still greater financial traumas.
Sincerely,
GHK Lall
