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Norway Votes On Future Of Oil Exploration

Norway Votes On Future Of Oil Exploration

Norway—the world’s North Sea offshore…

Gerald Jansen

Gerald Jansen

Gerald is an independent freelance energy analyst based in Rotterdam, the Netherlands.

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India May Become Guyana’s Most Important Oil Client

Nowadays one of the main buzz stories of the crude market has been focusing on Indian oil demand slumping as a consequence of the COVID-19 surge. As painful as India’s travails might be, the past weeks also seem to be giving traction to a new partnership, one that perhaps would aid the country in its quest of decreasing its massive oil imports bill. Considering its geographic remoteness from India, Guyana could be seen as one of the least viable alternatives to supply crude. Below the surface, however, there are many reasons indicating that India’s Guyana deal indeed would come to fruition. India needs new sources of supply, whilst the Guyanese government needs a reliable and long-term partner for its own equity, having so far failed to find a marketer for its crude.

India has reached out to Guyana, lured by the opportunity of marketing the crude entitlement of the Guyanese government. Liza started producing in January 2020 and the first 3 entitlement cargoes were allotted to Shell. When the Shell tender ran out, newly elected President Irfaan Ali has directly contacted other Stabroek stakeholders and then opted for Hess, committing 2 Suezmax cargoes in January-February 2021. Simultaneously the new Guyanese authorities have launched a longer-term tender that would finally satisfy the new political elite – unfortunately for Georgetown only the Russian oil firm Lukoil presented a qualified bid of the more than two dozen interested companies so the Ali Administration has relaunched the process once again, saying that it would seek direct negotiations instead of the tendering process.

Related Video: COVID Threatens Oil Sands Supply from Canada

Thus, the prize at stake are 5-6 Liza cargoes per year, of which at least two have already been taken and moved out. Of course, should an Indian company land the deal it would most probably go beyond the year 2021. Moreover, once ExxonMobil launches the 2nd phase of Liza (assumed to take place in 2022-2023) the number of cargoes would almost triple. Interestingly, the above-mentioned Liza cargo going to India was purchased and eventually refined by private refiner Hindustan Petroleum-Mittal Energy, however the talks on India potentially becoming Guyana’s marketer were conducted on a governmental level, implying that there might be a place for one of India’s state-owned refiners in the suggested scheme. According to India’s High Commissioner to Guyana, it would be the national NOC, the Indian Oil Corporation (IOC), that would be involved in the purchase scheme.

It is against this background that the Indian government has initiated negotiations with Georgetown.
To back its claim, India has bought its first-ever Guyanese cargo in March 2021, the Suezmax-sized cargo arrived on April 08. There have been no new India-bound purchases of Liza since. Thus, India’s overall share in Guyanese exports remains rather slim – most of cargoes have been split between Panama, the United States and China. As we will see below, Panama only acts a transhipment site and does not refine Guyanese crude, meaning that Liza’s most likely market outlets are located on the US East Coast and in southern China. Related: Is The Global Oil Industry Relying Too Much On China?

When checking various data providers on the final destination of respective Liza cargoes, Panama would come up as the most frequent one (averaged 78kbpd so far this year). In reality, none of the Liza cargoes actually end up in Panama, most of them are getting transhipped for further deliveries in the Pacific region. Thus, both Panama-bound Liza cargoes of April 2021 have eventually ended up in California – one in Benicia (San Francisco) and the other in Long Beach (Los Angeles). In March 2021, two nominally Panamanian cargoes went to California and the other landed in Quanzhou, China.

There are two main tenets in India’s interest in Guyanese crude. The first, economic, stems from India’s willingness to diversify its crude imports away from the Middle East. Despite its current COVID-triggered difficulties, India’s appetite for crude will continue to increase in the upcoming years. India has been voicing its discontent with OPEC pricing and production policies and securing a new stream would come in very handy for Indian refiners. The second link between Guyana and India might be less evident however still deserves to be noted – the Indo-Guyanese represent the largest ethnic group in Guyana, making up almost half of the population. As opposed to the previous President David Granger (who was Afro-Guyanese and sought no overtures vis-à-vis India), Guyana’s new head of state Irfaan Ali is Indo-Guyanese and this cultural affinity seems to be drawing the two nations together.

Even if New Delhi and Georgetown manage to iron out all differences in the upcoming weeks and the Guyanese government is not hindered by political obstructionism, increasing the government’s take to more than 1 cargoes every two month would require substantially increasing overall output levels, at least to stabilize it. Liza production has been hindered by recurring problems with the Liza Destiny FPSO, as recently as this April ExxonMobil was forced to cut down on production rates because of a discharge silencer, an element of the recently reinstalled gas compressor. Unfazed by the upstream helter-skelter, the Guyanese-Indian negotiations are poised to continue, primarily in an effort to find a mutually acceptable pricing formula. How to gauge the progress on the Indo-Guyanese talks? The next Liza cargo that should go to Guyana’s government is due this June – check out where it goes.

By Gerald Jansen for Oilprice.com

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