Gas-to-shore project: Exxon to recover cost of pipeline by selling gas to Govt

US oil major ExxonMobil, which is slated to deliver the pipelines for the Guyana Government’s model gas-to-energy project, will be selling gas to the country to recover the cost of the US$1 billion infrastructure to bring the rich gas to shore.
The multibillion-dollar transformational project, being piloted by the People’s Progressive Party/Civic Government (PPP/C), includes the construction of an integrated Natural Gas Liquid (NGL) plant and a 300-megawatt (MW) combined cycle power plant at Wales, West Bank Demerara (WBD).
Exxon will be piping gas from the Liza Field in the Stabroek Block onshore at Wales via pipelines that it will procure, install and maintain. Last month, Prime Minister Mark Phillips told the National Assembly that the 225 kilometres of pipeline will cost US$1 billion.
During a press engagement on Thursday, ExxonMobil Guyana President Alistair Routledge disclosed that this cost would be recovered through the sale of the gas to the Guyana Government.
“We will be selling [gas] to… the Government – it’s a Government entity or a company… but only in the sense that this is a pass through to the power. It’s not the country paying, it’s in order to fuel the power station… and take the NGL off.
“…in essence that development is just going to pay for the pipeline cost – nothing more. No, like profit element… Our commitment is to deliver this for the country. And so, the revenues just cover the cost of the [pipeline] development – nothing more… there is no profit element in there at all. It’s purely just to pay for that infrastructure,” Routledge stated.
However, it was noted that Government will not be paying for its share of gas. The pipeline cost will be recovered only on the Stabroek Block’s co-venturers’ share of gas. Exxon is the operator of the Stabroek Block and its co-venturers are Hess Corporation and CNOOC Limited.
According to Routledge, the price of the gas has not been determined as yet, but he assured that it will be at a “very low price” and “very competitive” internationally. He explained that the cost recovery mechanism agreed to stipulates that the price of gas be determined after the pipeline infrastructure is in place to ensure that there is no profit gain or loss incurred.
Once the investment cost is recovered, and there are no additional investments nor impacts on oil recovery, there will be no charge attached to the gas supplied.
Based on studies conducted, Exxon will be able to produce up to 50 million cubic feet of gas per day for this initiative without impacting oil production activities offshore.
“We’re selling the full 50 million cubic feet a day to the Government or a Government entity that’s being established in order to receive the gas, put it through the power station… At that point, the Government takes control of the gas and the associated natural gas liquids and could determine does all of the gas flow into the power station if needed, or does it go into some other kind of industry,” the ExxonMobil Guyana President stated.
According to Routledge, that entity could either be a private or state entity.
While there was no formal announcement or any additional information, it was revealed last month that the Guyana Government has established a special purpose company to manage the gas-to-energy project. In fact, during President Dr Irfaan Ali’s visit to India, it was disclosed that the Guyana Power and Gas Inc. – a wholly owned company of the Government of Guyana – signed a contract with Engineers India Limited (EIL) for the provision of consultancy services with respect to the construction of the two plants at Wales.
With the Environmental Permit being secured for this project last November, Routledge further noted that Exxon was working closely with the Guyana Government, through the Natural Resources Ministry, to iron out the agreements for this project. These include the Field Development Plan and updating the Production Licence for the Liza Field.
According to the ExxonMobil Guyana President, “we came to the country wanting to ensure that everyone benefits. Clearly, it needs to be a win-win-win… It needs to be a win for the investors of course, otherwise, it doesn’t attract investment. There needs to be a win for the Government and its ambition to develop the country and ultimately, for all the citizens in the country. We want what we’re doing here to have a sustainable positive impact. And we do see the gas-to-energy project as a critical part of that. It will deliver secure energy. It will no longer be the same requirement to import fuel oil to the current power plants, and it will be lowered emissions.”
The President Ali-led Government has boasted that the operationalisation of the gas-to-energy project will see current electricity charges cut in half as well as fuel the expansion of the industrial and commercial sectors.
So far, Government has spent $24.6 billion on the start-up of this project. This includes $400 million for the acquisition of private lands to facilitate the laying of pipelines in Region Three and the remaining $24.213 billion was a 15 per cent payment on the Engineering Procurement and Construction (EPC) contract, which was awarded to US companies CH4 and Lindsayca late last year. The total cost of the EPC contract is US$759.8 million.
In addition to the EPC contract, the supervision of the NGL and power plant components of the project will cost another US$23 million.
With a timetable to deliver rich gas to fuel the power plant by the end of 2024 and the NGL plant to be online by 2025, works are progressing on getting the gas-to-energy project off the ground. (G8)