Every Man, Woman and Child in Guyana Must Become Oil-Minded – Part 94
Article was Published on July 16, 2021
Introduction
Over the past few weeks ExxonMobil has been holding public consultations on an application to the Environmental Protection Agency (EPA) for an Environmental Authorisation for what it describes as a Gas to Energy Project Onshore and Offshore. According to the Project Summary, it includes the construction and operation of a pipeline from the Liza Phase 1 and Liza Phase 2 Floating, Production, Storage, and Offloading (FPSO) vessels to an onshore natural gas liquids (NGL) and natural gas processing plant (NGL Plant). The summary also states that the power plant will be owned and operated by Government of Guyana.
At the same time, the Ministry of Natural Resources is advertising for expressions of interest for what it describes as Gas Related Investments which include:
- Joint participation with the Government of Guyana and Esso in designing or utilising the outputs from an NGL/LPG facility and related facilities.
- Design, construction, and financing of a power plant fuelled by natural gas, where the power will be delivered into the GPL grid.
- Industries that can utilize natural gas for “natural gas driven developments and growth.”
A reasonable reading of the two initiatives is that these are discrete and separate but yet interdependent projects with separate ownership, financing and operations, with their own economic, environmental and financial considerations. Esso is currently engaged in a series of public consultations in which the EPA and the Ministry of Natural Resources play an undefined but over-defensive role. The statutory basis of the consultations however is hazy at best.
Back to the Agreement
Whether Guyanese is better informed after the consultation is left to be seen, but let us take a step back and look at the provisions of the 2016 Petroleum Agreement on gas. In fact, Column 43 (May 11, 2018) examined and commented on the Article from which this column now borrows. The Agreement provides that Associated Gas produced from any Oil Field within the Contract Area must first be used for the purposes related to the operations of production and production enhancement of Oil Fields, such as Gas injection, Gas Lifting and power generation.
One might be tempted to think that this refers to the purpose for which it is now proposed but this is doubtful. Indeed, power generation could refer simply to the generation of electricity by the FPSO’s and other vessels at the well sites. Further conflicting evidence is found in the Article which requires the Operator to include in the Development Plan of each Oil Field a plan for the utilisation of the Associated Gas. The Article goes on to provide that where there is any excess Associated Gas, the Contractor is required to carry out a feasibility study regarding the utilisation of such excess Gas and to include it in the Development Plan for the Oil Field.
The representative of the Ministry of Natural Resources has confirmed that there is not one but several such Development Plans. That would suggest that Esso has conducted a feasibility study and must have satisfied itself of its economic benefits of development of the gas resources. As a measure of the lack of any ringfencing of costs, the Article provides that all costs and expenses incurred by the oil companies in the product ion and/or disposal of the Associated Gas of an Oil Field and the costs incurred in the feasibility of the utilisation of the excess Associated Gas is Recoverable Contract Costs.
On the other hand, all costs incurred by the Government for the infrastructure and handling of excess Associated Gas not included in an approved Development Plan is at the sole risk and expense of the Government and will not affect the amount of the Cost Oil and Profit Oil due to the Contractor.
Our patrimony is in the hands of the oil companies
Article 12.1 (c) provides that where the Contractor believes that excess Associated Gas of an Oil Field has commercial value, the Contractor is entitled, but not required, to make further investment to utilise such excess Associated Gas subject to terms at least as attractive as those established for Crude Oil in Article 11 dealing with Recoverable Contract Costs. In any case in which the Contractor believes improved terms are necessary for the development of excess Associated Gas, the Agreement requires the Government and the three oil companies to “carry out friendly negotiations in a timely manner to find a new solution to the utilisation of said excess Associated Gas and reach an agreement in writing.” Over what is our patrimony, the Minister can only lay claim if the Contractor confirms to him by Notice to him that it will not include the development of excess Associated Gas in its or their Development Plan. Clearly, that is no longer the case. Esso is in the driver’s seat for gas as well.
By Chris Ram
Article Originally Published At: https://www.chrisram.net/?p=2297
