Guyana gas-to-power project to shave weeks off oil output, hit revenue

By Sabrina Valle

GEORGETOWN (Reuters) – Guyana’s efforts to use its natural gas resources to fuel a power plant that would slash the South American nation’s energy costs have snagged on construction delays and threaten to curtail the rising oil hotspot’s revenue this year by about $1 billion.

The $1.9 billion gas-to-power project, Guyana’s biggest effort to capitalize on its energy bounty, is embroiled in legal fights and risks cost overruns. The first phase of a 300-megawatt (MW) power plant is running six months behind schedule and full operation is not expected until the fourth quarter of 2025, officials have said.

Exxon Mobil, which operates all the oil and gas production in Guyana, is building a 140-mile (225-km) gas pipeline from its offshore Stabroek block to supply the government’s project onshore: a power plant, a related natural gas processing facility and transmission lines.

The U.S. oil major’s part of the project, the about $1 billion pipeline, will be ready by year-end as promised to Guyana, said Exxon Guyana country manager Alistair Routledge. That is despite having nothing to connect it to onshore because of delays on the works managed by the government.

The Stabroek block, site of the country’s first commercial oil and gas discovery in 2015, currently produces crude – about 645,000 barrels per day (bpd). The new power plant will be the first to use the associated gas produced from the oil field that to date has been re-injected underground.

The gas pipeline completion will require Exxon to pause production in the third quarter at two oil production vessels to connect them to the undersea pipeline, Routledge said.

If the tie-in lasts four weeks, Exxon and its consortium partners Hess and China’s CNOOC would have to halt up to 12 million barrels of oil output from two platforms that produce 400,000 bpd at peak levels.

Based on Guyana’s recent sale at $85 per barrel, that could mean over $1 billion in deferred oil revenue.

An Exxon spokesperson last week declined to specify how long the production halt will last. Routledge had said the pipeline connection and maintenance works would take “weeks, not months.”

The executive said Exxon is not worried about having to shut production this year for a project that will not be ready to accept the gas at least until sometime in 2025.

When the gas-fired power plant is ready is “a question of timing,” said Routledge.

“It’s hard to have all the facilities ready at the same time.” As soon as the onshore facilities are ready, “the whole thing will start up and all those benefits will flow to the country,” he said.

Guyana will miss the chance to slash its power costs this year because of the project delay. It imports expensive fuel oil for an aged and often faulty power facility. When fully running on natural gas, the new plant will reduce the nation’s power costs by 50%, officials have said.

“Of course we are doing the best we can, but we have to be realistic,” Winston Brassington, who coordinates the power project as a consultant for Guyana’s Ministry of Natural Resources, said in an interview in February.

While it is not uncommon for major projects to run behind schedule, Guyana’s government faces a presidential and parliamentary election next year and is keen to deliver tangible benefits to the nation’s 750,000 residents.

“There is more pavement in the city,” says fruit vendor Michael Bharrat, 23, when asked about the most visible signs of development brought by the nation’s oil boom. “The government could be doing more to help poor people,” he said.

Government officials are anxious to fulfill a 2020 election promise to cut residents’ energy costs and want to use the gas for industries that can create jobs or for exports as liquefied natural gas.

The government has been pressing Exxon and its partners, which prior to this project have focused on oil, to develop the country’s gas resources.

“There is a window of opportunity between now and the end of the decade to monetize and maximize the value of Guyana’s natural gas resources,” President Mohamed Irfaan Ali told oil executives during a conference in Georgetown in February. “We need to develop our gas now.”

UNANSWERED QUESTIONS

Critics of the project say there are a lot of decisions yet to be made and little clarity over the next steps, including who will operate the power plant and market the gas-liquids such as propane produced by the related gas-processing facility.

Meanwhile, two contractors hired by the government for the project have filed for arbitration over costs overruns of $90 million and residents have filed lawsuits claiming unfair compensation for land taken to build the project.

“What rate will Guyana be paying for the unusable or unused gas? Is the gas sales agreement completed?” asked Elizabeth Hughes, a land owner whose family land was expropriated for the project. “There are so many questions unanswered, there is no transparency at all.”

Bharrat Jagdeo, Guyana’s vice president, told Reuters in February the project is following its new schedule and will stay within its original budget.

“We believe this is nothing to worry about,” Jagdeo said. “It is a two-year project, will take a few more months, but not a year” to complete.

Wally David, 66, a retired trolling boat mechanic, smiles when asked if the government he voted for in 2020 will deliver on its promise to build the gas-to-power project as promised.

“I think it will get done someday,” he says from his home in Georgetown, where he complains a road construction project outside his house run by the government is behind schedule.

“Maybe in three, four years, just not now.”

(Reporting by Sabrina Valle; Editing by Marguerita Choy)

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