Dear Editor,
There is no shortage of critics regarding the gas-to-shore project. It is healthy and encouraging to have debates on a project of such magnitude, but arguments must be premised on cold, hard facts. There is an urgent need for more rigorous analysis. This brief letter bears the undisputable facts that appear slippery to many naysayers.
The development and competitiveness of the modern economy depend on, among other things, electricity quality, reliability, and cost-effectiveness. No one will argue that Guyana is woefully lacking in this arena. The country’s rapid development will only exacerbate this inadequacy, unless the Government takes immediate remedial action. Enter the gas-to-shore project.
Generally, the case for a project is established when the anticipated outcome (e.g., creating a new product or service) solves a problem or capitalises on an opportunity. The top 1% of successful projects solve a problem AND capitalise on an opportunity. The gas-to-shore project is one such example. Let me explain.
Solving the problem of
inadequate generation capacity
Guyana Power & Light Inc. (GPL) needs a more reliable baseload generating capacity, the absence of which leads to frequent “blackouts” and “brownouts.” This inadequacy can only get worse as demand increases. With its 350MW capacity, the gas-to-shore project would solve this problem; at least in the mid-term, until further demand necessitates additional generating capacity.
Capitalizing on an Opportunity
Fuel to operate the power plant is only free/cheap if that fuel is Guyana’s own natural gas. With trillions of cubic feet of natural gas in its reservoirs, who can argue that Guyana should not seize the opportunity to use its natural gas to help reduce the operational cost of its power plants? Based on the Government’s estimates, using this “free” fuel would reduce electricity costs by a whopping 50%.
Economists will rush to shout that I am ignoring the opportunity cost. What are the alternatives for its natural gas? It could be flared (any proponents here?) or sold. Indeed, the project anticipates selling some of the gas for domestic consumption – yet another benefit to the Guyanese people. But local consumption is not enough to absorb the abundance of natural gas. The alternative would be to export the excess. While that may be feasible from an opportunity cost perspective, it is economically better to consume the gas in the power plants.
I will deal with the project costs and financing in another letter. Suffice it to say that that is one of my areas of expertise; I build project financing models for large enterprises and venture capitalists.
Redundant Generating Capacity
Some may argue that the Government is “wasteful” by ignoring the vast sums already spent on existing power plants. In the context of electricity generation, this argument misses a critical perspective. To ensure a reliable flow of electricity (meaning, when a customer puts on his switch, the power is there), the utility company must have “redundant” generating capacity. That is, excess generating capacity over its maximum demand. Indeed, all reliable power generators have significant amounts of redundant capacity.
Let me extend this argument. What would happen if the project’s power plant became inoperable for whatever reason? GPL’s existing power plants would be there to the rescue, ensuring the continuous electricity supply.
In electric utilities, redundant capacity is not limited to generating capacity; it extends to transmission and distribution networks. GPL’s radial network is part of its Achilles’ heel. If there is an interruption along part of one of its transmission lines, the entire network becomes inoperable. Enter frequent blackouts. More on this concept in another letter.
Conclusion
The gas-to-shore project solves the central problem of inadequate electricity-generation capacity. It also seizes the opportunity to exploit Guyana’s “free” fuel, reducing electricity costs by 50% for Guyanese.
Critics who dwell on the total project costs should reconsider their perspective by evaluating the project in its entirety. In my following letter, I will share my independent project financing modeling costs and analyses, which should restate the argument that the gas-to-shore project is advisable, if not genius.
Yours faithfully,
Ash Deonarine
