Guyana’s Vice President Says Energy Transition Won't Hold Back Greenfield Fortunes
Guyana boasts some of the world's most economic offshore fields. Now it must navigate how to produce them in a world that is asking for oil producers to pull back.
In May 2015, Guyana popped onto oil and gas radars around the world after ExxonMobil announced its first of many successful deepwater exploration wells drilled in the vast Stabroek Block. Guyana’s offshore fields now are recognized as holding some of the lowest-cost barrels found anywhere on the planet.
The first development, Liza-1, is averaging approximately 120,000 B/D and has a breakeven mark of $35/bbl. ExxonMobil and its partners Hess and CNOCC said they expect the next phase, Liza-2, will come online next year with an even lower breakeven price of $25/bbl.
The South American nation of just 780,000 people estimates that, with a few more developments, which may involve up to 10 floating production, storage, and offloading units (FPSOs), output off its northern coastline will top 1 million B/D by 2027.
However, Guyana’s prized greenfields have emerged against a backdrop of mounting pressure to decarbonize the world’s energy supply in a bid to curb climate change.
The country’s vice president, Bharrat Jagdeo, spoke about the juxtaposition this week at the Offshore Technology Conference (OTC) in Houston. He told attendees at the industry conference that with over 85% forest cover, Guyana is “already a net-zero emitter” and added, “Where the world is trying to get to by 2050, Guyana is already there.”
Despite this, there are voices from within Guyana and from environmental groups around the world imploring the country’s leaders to halt future offshore development. “We believe it’s totally unfair,” said Jagdeo, who rejects the “leave it in the ground” argument.
He emphasized that Guyana has a “legitimate expectation” to achieve prosperity after highlighting that per capita income in the country is around $6,000—one of the lowest such figures in the western hemisphere. Guyana’s government wants to raise the income benchmark to $30,000 in the coming years, something that won’t happen without oil and gas revenue.
To Jagdeo, keeping Guyana on the sidelines only benefits those countries already participating in global oil trade. “Why should we not want to displace some of the higher-cost producers in the world? We want to share in that market,” the vice president said.
Evolving Oil and Gas Policies
As Guyana seeks to ramp up oil production by about tenfold in the coming years, it is also looking to establish new terms for future licensing agreements. Jagdeo outlined some of the recently adopted licensing changes along with some of the proposed changes:
- Terms of the environmental permits for ExxonMobil’s Stabroek developments, Liza-1 and Liza-2, have been reduced from 25 years to 5 years.
- Permits for ExxonMobil’s third development, called Payara, include new fees for flaring beyond the commissioning stage. ExxonMobil has suffered compressor failures in the Liza-1 project that led to excessive flaring.
- Also new, ExxonMobil and partners must pay $2 million over the next 4 years for safety inspections.
- Newly proposed permitting changes will include wider provisions for oil spill liabilities.
- After stepping off stage at the conference, Jagdeo told Reuters that the government plans to increase royalties in future production-sharing agreements.
Boosting Local Capacity and Benefits
Another top priority for the Guyanese government is to pursue what Jagdeo called “an aggressive local content strategy.”
The country doesn’t have the capacity to build FPSOs, he said, but it can turn out more welders and absorb more of the offshore logistics and support business. Guyana’s government is trying to bolster local participation in these areas by improving access to universities and trade schools.
For its part, since making its first discovery 6 years ago, the ExxonMobil-led consortium reports spending nearly half a billion dollars on goods and services from hundreds of Guyanese vendors.
An ExxonMobil executive speaking later at OTC shared that the international major employs 2,800 Guyanese nationals, including about 500 women. This represents 50% the workforce supporting Guyana’s first two offshore projects. The consortium is also backing a $100-million initiative to fund local education, health, and economic-development projects across the country.
Another project aimed at improving the quality of life in Guyana plans to bring offshore gas via a 160-km pipeline to an onshore power plant. Proposed by ExxonMobil and the Guyanese government last year, the gas-fired power plant would be the nation's first.
Like several of its neighbors in the Caribbean region, Guyana is wholly dependent on bunker fuel for power generation. Jagdeo noted that the country's generators are not only unreliable but also are the reason why Guyana has some of the highest electricity rates in South America—around $0.30/KwH, a price he called “debilitating for industry and for people.”
The government is looking into what it would cost to build new hydroelectric plants and solar farms, but the gas-to-power project is considered a bigger priority. While construction has yet to begin, ExxonMobil’s subsea pipeline as proposed would carry enough gas to generate up to 250 MW, more than double Guyana’s current 120 MW installed capacity.
“Some people are saying we shouldn’t do it,” said Jagdeo of those criticizing the gas-to-power project for running afoul of global climate goals. “But it's going to make a big difference in the lives of not just Guyanese but investors, and it can catalyze a whole series of new industries.”