The context for oil in Guyana is looking even more favorable thanks to the passing of a landmark local content law last week. With greater opportunities for exploration in Guyana’s waters, as well as already strong investments by some of the world’s supermajors, the Caribbean is set to be the oil-producing region of the future.
Many companies have started their movement away from traditional oil-producing states, particularly in Europe and North America for several reasons. Firstly, several countries in these regions are currently developing policies for the transition away from fossil fuels to renewable alternatives, leading to unfavorable regulatory frameworks for new exploration projects. Secondly, many companies have been driven to Africa and the Caribbean thanks to new oil discoveries and the prospect of lower-cost operations. And, thirdly, while oil in some regions is drying up, these new oil regions offer the possibility of large untapped resources where oil firms can commence long-term, lower-carbon operations.
And last week, Guyana made it that much easier for international oil firms to gain access to these resources. President Mohamed Irfaan Ali signed a local content bill into law at the end of 2021, which will offer international oil companies the opportunity to bid on several exploration blocks in the second half of 2022.
The Guyanese president hopes this will help the country to benefit from its new oil discoveries, rather than losing out to international players. Ali stated, “This local content bill gives us the opportunity to win. It sets the framework for Guyanese to win and that is what we are interested in.”
The law also makes it compulsory for certain goods and services to be provided by Guyanese companies, including engineering and machinery as well as immigration and environmental services. The government also intends to promote associated social and economic development through the law, such as supporting the tourism and real estate sectors. Since the first sale of its oil by ExxonMobil in 2019, the citizens of the country have been asking the government to ensure the oil revenues are pumped back into the national economy, benefitting the whole country. The new law aims to fulfill this objective. Related: Oil Tops $80 After OPEC+ Sticks To Plan To Ease Cuts
To date, international oil companies have made discoveries of 10 billion barrels of oil and gas. In a country of just 800,000, this could have a huge economic impact. Its GDP grew over 43 percent last year alone, while most other states were battling Covid-related economic downturns. Much like oil-rich countries like Norway and the UAE, Guyana has set up a Natural Resources Fund to manage oil revenues as high as a projected $130 billion over the next two decades.
While Guyana stands to profit from the new law, greater exploration adds to the already promising outlook for international investors. In December, Exxon moved ahead with new exploration drilling activities in the Stabroek block. The oil major hopes to find more hydrocarbons in the Fangtooth-1 and Lau Lau-1 wells. Exxon is also carrying out appraisal drilling through the Tripletail-2 and Turbot-2 wells in the same block.
ExxonMobil is currently seeing output of around 120,000 barrels per day from its Liza oilfield in the Stabroek block. The firm contracted a second floating production system, the Liza Unity FPSO, to support operations in the field, which set sail from the Keppel shipyard in Singapore in September. With the potential to produce 220,000 barrels of oil per day, this will significantly enhance Exxon’s operations in the region. The facility will also be capable of storing 2 million barrels of crude oil. A third vessel, Prosperity FPSO, currently under construction, will join the others by 2024.
Guyana can expect an oil output as high as 750,000 barrels per day by 2026, according to Exxon. While American oil firm Hess believes production could total 1 million bpd by 2027.
In December, Exxon also announced the construction of a supply depot, which would bring its total investment to $30 billion. It hopes that this supply base will support the creation of local construction and long-term oil-related jobs. The firm has also hinted at other developments in the country, such as a gas-to-energy project, which would decrease the cost of electricity. An Exxon-led consortium, alongside Hess Corp and CNOOC, currently employs 3,200 national workers across its operations.
It seems that Exxon is putting all its eggs in one basket, moving the vast majority of its offshore operations to Guyana from previous projects in the United States, Brazil, and Trinidad and Tobago. This is largely due to the reasons stated earlier, with Guyana offering brighter prospects for the future of low-cost, lower carbon oil operations that will not dry up any time soon.
By Felicity Bradstock for Oilprice.com
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