Guyana Times weekly column The Economy & Finance JB’s Insight Date: July 12, 2020 Article # 28/2020

How can Natural Gas benefit Guyana economically? Wood Mackenzie in a recent report published in the local press noted that over some 7.7 trillion cubic feet (tcf) of associated and non-associated natural gas has been discovered across the Stabroek Block. This development is of course a positive dimension with respect to Guyana’s long-term economic development and transformation. As such, today’s article seeks to lend context and an understanding of how natural gas could benefit Guyana with respect to transforming the livelihoods of its people. In doing so, the article draws on empirical evidences. Drivers of new natural gas demands In the next decade, the power sector will provide the largest growth in gas demand which depends on two major drivers: growth in total electric generation and growth in the gas share of electric generation. Most of the growth in the power-sector demand will be met by increasing amounts of natural gas – fired generation and also by renewables. Coal – fired power plants will be retired in response to more stringent environmental regulations and more competitive low gas prices, which will lead to a change in the mix of generation fuel and an increase in natural gas market share. The second largest demand increases are felt in the U.S. industrial sector, which uses natural gas as both a fuel and feedstock to meet a variety of energy requirements. The U.S. manufacturing sector accounts for about 80% of total industrial gas demand, with the remaining 20% coming from agriculture, construction and mining. Use of natural gas for electric energy generation In recent years, the amount of natural gas being used as fuel to generate electricity has been gradually increasing due in part to the decreasing price and increased supply. Electric utilities have been increasingly turning to natural gas as a fuel source, especially for new electric generating plants, such as combustion turbines and combined-cycled plants. The primary benefit to the manufacturing sector is that the increasing use of fuel will result in lower generation cost for electric power. The significance of shifting electric power sources is such that the rising demand for the use of natural gas fuel in electric power generation will contribute to electric power generation will contribute to investment in new natural gas infrastructure, such as transmission lines, gas processing plants, and compressor stations.       Forward linkages The outputs from the natural gas intensive sectors are used as inputs by other sectors of the economy in a variety of ways. Such uses are referred to as forward linkages and include:
  • Intermediate inputs (e.g., goods and services sold to other sectors that are used in production processes to make other types of goods and services, with no sales to final demand occurs).
  • Sales to final demand (e.g., goods and services that are not used as intermediate inputs and no further processing of the output occur).
Types of final demand include:
  • Personal consumption expenditure (e.g., purchases of refined products such as gasoline at filling stations or home heating oil).
  • Gross private investment
  • Private inventory accumulation
  • Exports or imports
  • Government consumption and gross investment
The forward linkage or downstream manufacturing sectors, will potentially benefit from increases in supply and/or the lower cost for natural gas. Final demand sectors, such as personal consumption, exports, and imports are also affected by changes in natural gas production and pricing, but indirectly, through industry production changes captured by intermediate inputs shifts to industry production. For example, personal consumption impacts, such as those resulting from lower electricity prices, are captured first by feedstock inputs to the electricity industry and flow through to all industries before resulting in lower prices for the consumer. In the final analyses, the natural gas industry is a major contributor to the GDP of many countries. The industry is inherently large-scale, generating millions of dollars in associated revenues and tax income and employing thousands. As an example, in 2008 natural gas production in the U.S added US$385 billion to GDP. Gas exporting countries as diverse such as the U.K, Netherlands, Russia, Qatar, Australia and Indonesia have benefited from the enormous economic benefits that are the combinations of the following:
  • Taxation of profits and of gas production
  • Wider job creation in the industry from upstream exploration and production (E&P) companies, midstream processing and pipeline transportation companies, downstream local supporting arms focusing on law, human resources, public relations and many other aspects
  • A local source of natural gas can act as a catalyst to other industries such as chemicals, driving wider economic growth
  • Employment transformation from old industries such as coal and steel to new high-tech natural gas extraction and innovative appliances.
  • New job creation across the skills and knowledge base, from entry level to Ph.D
A study by the Center for Global Development (CGD), found that the greater use of natural gas for electricity could help lift some countries out of poverty by providing greater access to affordable and reliable power.  Natural gas has to be extracted in sufficient volumes however, in order to be economically viable.  It is within these conceptual frameworks that for Guyana, natural gas development in tandem with the oil industry, could potentially transform Guyana and alleviate poverty, inter alia, substantially reducing the cost of energy as part of the energy mix, which, in turn, can advance an industrialisation plan for Guyana’s future development. About the Author:
  1. Bhagwandin is a macro-finance and research analyst, lecturer and business & financial consultant. The views expressed are exclusively his own and do not necessarily represent those of this newspaper and the institutions he represents. For comments, send to jbbankingadvice@gmail.com.