Commodities
Guyana gas-to-power project to shave weeks off oil output, hit revenue
By Sabrina Valle
GEORGETOWN (Reuters) – Guyana’s efforts to use its 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 (NYSE:), 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 (NYSE:) and China’s CNOOC (NYSE:) 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.”
Investing.com – With another day of gains in and futures, the Swiss group Julius Baer has decided to change its outlook on commodities to constructive. The group now believes that both metals have the potential for further increases, as stated in a note sent to clients and the market on Friday morning.
The group mentioned that, in addition to U.S. monetary policy, the gold market is still dominated by Asia. “We have to recognize that the region’s willingness to pay for gold as a hedge against economic and geopolitical risks appears even greater than we expected,” said Carsten Menke, head of next-generation research at Julius Baer.
Weaker-than-expected U.S. economic data have revived hopes for interest rate cuts by the Federal Reserve (Fed, the U.S. central bank), boosting gold and silver prices. This could “be the missing incentive for safe-haven seekers in the Western world to return to the markets,” he added.
Central Bank Purchases in Focus
Central banks have been buying gold more for geopolitical reasons than economic ones, according to Julius Baer. In China, for example, there is a desire to reduce dependence on the U.S. dollar – important for avoiding potential sanctions.
The People’s Bank of China is believed to be responsible for at least 30% to 50% of all central bank purchases over the past two years. Although it shows signs of being price-sensitive, “its willingness to pay has increased as gold prices rise,” notes Julius Baer. It is expected that other monetary authorities will follow the same steps, moving away from the U.S. dollar.
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Over the past three weeks, US prices have surged 30% to above $2.50 per million British thermal units (mm/BTU), fueled by production declines and increased feedgas demand for liquified natural gas (LNG) exports.
Moreover, recent producer cuts, maintenance events, and Freeport LNG’s normalization of gas demand post-outage have contributed to this rise. Cheniere’s announcement of no heavy maintenance for its liquefaction trains this year also supports higher prices.
In a Thursday note, Goldman Sachs strategists said the return of gas prices above $2/mmBtu aligns with their expectations, as production curtailments “would ultimately lead to lower storage congestion risks for this summer.”
“That said, we see only limited further upside from current levels, with stronger gas prices risking a return of congestion concerns,” they added.
Goldman notes that prices above $2/mmBtu reduce gas competitiveness compared to coal, with a $0.50/mmBtu increase potentially cutting gas demand by 1 billion cubic feet per day (Bcf/d), especially in shoulder months.
Moreover, higher prices may prompt the restart of previously shut-in wells. EQT (ST:), the largest producer in the Appalachia region, indicated it would resume production if prices sustainably exceed $1.50/mmBtu. And while Appalachia prices haven’t risen as much as NYMEX, the local hub has averaged $1.44/mmBtu month-to-date, up 10¢ from last month, strategists highlighted.
Elsewhere, European gas prices have also risen this summer, though less sharply than in the US.
Title Transfer Facility (TTF) prices increased 18% over the past three months to around 30 euros per megawatt-hour (MWh), holding steady in May.
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However, unlike the US market, this rally lacks fundamental support, with Northwest (NW) European gas storage at record-high levels, Goldman strategists pointed out.
“To be sure, NW European LNG imports have remained weak relative to last year – and are likely to get weaker in the coming weeks owing to a seasonal decline in global LNG production, exacerbated by outages at Australia’s Gorgon export project,” they said.
“Going forward, we expect healthy non-European demand for LNG to continue to incentivize a decline in European LNG imports vs last year,” they continued.
Investing.com– Gold prices fell slightly on Friday, trimming some of their gains for the week as comments from a slew of Federal Reserve officials offered a more sobering outlook on interest rate cuts.
The yellow metal had risen to nearly $2,400 an ounce this week in the immediate aftermath of some soft U.S. economic readings. But it pulled back from these levels on Thursday and Friday.
steadied at $2,377.40 an ounce, while expiring in June fell slightly to $2,381.10 an ounce by 00:19 ET (04:19 GMT).
Gold retreats as Fed officials downplay rate cuts, but weekly gains due
The yellow metal fell on Thursday after a string of Fed officials cautioned against bets on immediate reductions in interest rates.
Several members of the central bank’s rate setting committee said the central bank will need much more convincing that inflation was coming down beyond a marginally soft inflation reading for April.
This saw traders begin pricing out some expectations for a rate cut in September. The and also rebounded from earlier losses this week.
Still, some softer-than-expected readings put gold on course for a 0.7% weekly gain.
The yellow metal was also in sight of a record high of above $2,430 an ounce, although it appeared unlikely the level would be met in the near-term.
Other precious metals retreated on Friday, but were set for bumper weekly gains. fell 0.2% but were trading up 6.2% for the week, while fell 0.4% but were up 4.5% this week.
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Copper mixed amid middling China cues
Among industrial metals, one-month copper futures tumbled from two-year highs tracking middling economic data. But three-month copper futures pushed higher and were set for a stellar week as markets bet on tighter supplies and an eventual demand recovery in the coming months.
on the London Metal Exchange rose 0.6% to $10,445.0 a ton, while rose 0.3% to $4.8935 a pound.
Data from China on Friday painted a mixed picture of the economy. While grew more than expected, growth slowed and shrank at an accelerated pace. Growth in Chinese also slowed.
The readings presented a muddled outlook for the world’s biggest copper importer, as it rolled out more stimulus measures to shore up growth.
Three-month copper futures gained on the prospect of a demand recovery, and were up nearly 4% this week. They were also at two-year highs.
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