The present-day history of Guyana’s energy sector begins with Exxon’s discovery of substantial offshore oil reserves in 2015. Exxon estimated that the massive Liza-1 oil field held over 700 million barrels of oil. Guyana’s oil is a high-quality light crude that is worth more than the heavy crude of nearby Venezuela.
Major Players Have Shown Interest
Exxon is undoubtedly the most significant player in Guyana’s oil market, but there are projects involving other firms as well. Hess, Shell, Total, CGX, Repsol, and CNOOC have all shown interest in Guyana. Hess even discovered 1 billion barrels of oil in the Stabroek Block. Royal Dutch Shell won contracts to market the government of Guyana’s share of early production. The wealth from Guyana’s rapidly growing economy stands to benefit many parties.
Continued exploration in the Stabroek Block led to the discovery of reserves totaling over 6 billion barrels of oil and gas. Exxon predicted production of 120,000 barrels per day in the early years, with output rising to a peak of 750,000 barrels each day in 2025. We expect the oil and gas industry to support economic growth in Guyana, but risks remain.
Dealing with Economic Growth
The development of Guyana’s vast oil reserves is transforming the nation’s economy. The International Monetary Fund predicts that Guyana’s GDP will grow by over 85% during 2020. While the oil boom is sure to generate new wealth, how that wealth will be divided remains contentious. In particular, the Inter-American Development Bank estimates that government revenues will grow only about 26% in 2020. While that is impressive, it is far less than the growth rate of the overall economy.
Opposition parties have criticized the government’s deal with Exxon for being too generous toward the oil giant. On the other hand, the Guyanese government has taken steps to create a sovereign wealth fund. That is consistent with the policies of some of the most prosperous and progressive oil-exporting countries, such as Norway.
A Commitment to Renewables
Far from sacrificing the environment for prosperity, Guyana is using part of its oil wealth to fund a green development plan. The transition to renewable energy in Guyana is already beginning. In 2018, Guyana secured funding from the Inter-American Development Bank and the Norwegian government for a 100 MW solar project.
The governing coalition in Guyana, which includes A Partnership for National Unity (APNU) and Alliance for Change (AFC), has set an ambitious goal of moving to 100% renewable electricity by 2030. While that may seem difficult to achieve, remember that Guyana put major oil fields into production in less than five years.
Positive Outlook for Production
The first one million barrels of oil from Guyana’s Liza field were shipped to Texas for refining near the beginning of 2020. It will be the first of many such shipments as Exxon’s production ramps up to 750,000 barrels a day by 2025. With a population of around 780,000, that is nearly a barrel per day for every person in Guyana. However, the Guyanese government was still seeking more oil companies and trading firms to sell its share of the crude oil on world markets as of early 2020.
Political Complications Heighten Risks
While Guyana’s oil resources are impressive, political uncertainty remains an issue. The opposition People’s Progressive Party/Civic (PPP/C) has been critical of the governing APNU+AFC coalition’s deal with Exxon. Disputes over the outcome of the March 2020 elections could further complicate the situation in Guyana.
At Latam Energy Advisors, our outlook on Guyana remains cautiously optimistic. It is crucial to remember that many of the most profitable investments are made during uncertain times. There are risks in Guyana, but the potential rewards are far greater.