SEVERAL wells drilled off the coast by the Exxon-led consortium in the Stabroek Block have found natural gas together with vast reserves of oil. Naturally, many Guyanese are very curious how we can get the most wealth for this new resource.

It is important to understand that natural gas is a starkly different commodity than oil. Generally, the project economics for gas can be much more challenging l. This is due to a number of factors which impact production and export of gas. Gas prices are generally significantly lower per unit than oil; many countries supply their own gas needs locally, and transportation is much less efficient than for oil.

The global market for gas is also volatile and risky. This is because gas, often used as a fuel source for electrical grids, has many competitors like coal, nuclear and renewables. Contrast that with oil, which has limited viable alternatives on a large scale when it comes to transportation fuel. While countries consistently import large volumes of oil for their domestic needs, the demand for gas is more fickle. Also, new gas supplies from shale in the United States and in other huge reservoirs in Russia, Iran, Qatar and elsewhere are outpacing this demand.

The current status of the gas industry is a prime example of that instability. Gas prices around the world are near historic lows due to the glut of production. Gas prices fell by more than 27 per cent in just the last quarter of 2019. Hess Corp., one of the members of the Stabroek consortium, recently reported US$180 million in losses in 2019 due to low prices.

Transporting gas is also costly and complex. It is most often moved via pipeline and reliance on pipelines, which take significant investment to develop, means that gas is often only affordable for domestic markets or nearby neighbours. This in turn means that gas export often depends on having neighbours that are eager to buy. This is not good news for Guyana, as all of our neighbours either have their own sources, like Brazil and Venezuela, or are very small markets, like Suriname and French Guiana.

For longer shipping distances, gas has to be shipped in special vessels as liquefied natural gas (LNG). Converting gas to LNG requires a natural gas liquefaction plant, one of the most complex and expensive industrial investments in the world. These plants generally require extensive and highly specialised port infrastructure, massive pipeline complexes and large, expensive systems to cool the gas down to -260 degrees C and pressurize it so that the gas can be packaged for transport on LNG tanker ships. It’s a technologically complex endeavor that takes years to start offering financial returns and can only be done profitably at a massive scale.

Even with all of that infrastructure, margins are thin. Exxon and its partner, Oil Search, recently decided that the project economics for a planned expansion to a massive gas extraction project in Papua New Guinea (PNG) no longer made sense under new fiscal terms proposed by the government. Both parties walked away from talks last month after an agreement could not be reached, with companies pointing to the low-price environment and frontier character of PNG as reasons they could not find a financial path forward.
Even when the fiscal environment for gas is right, there still needs to be huge reserves of natural gas. The world’s biggest natural gas plays possess trillions of cubic metres of offshore gas reserves. The project economics in these countries make sense only because gas is the primary resource and the volumes are huge.

As Energy Director, Mark Bynoe, recently revealed, the majority of what has been found here so far is high quality oil. Around 75 per cent of the eight billion barrels of oil equivalent found so far has been oil, with another 25 per cent gas. Barrels of oil equivalent (BOE) is a common industry measure. Two billion BOE translates to about 340 billion cubic metres of gas. Although Guyana’s oil finds have been impressive, its associated gas resources will likely be dispersed widely across multiple discovered fields and not the huge stand-alone natural gas fields with low development costs that dominate the LNG sector.
Guyana’s discovered gas will, however, generate very significant value for the people of Guyana almost immediately. This associated gas is a critical tool for oil extraction. “Reinjecting” the gas into oil wells will maximize Guyana’s oil production and is in fact the basis for the oil revenue productions that are being discussed. Guyana is fortunate to have an oil-based future as it provides the highest revenue stream to the country and gas will be intrinsic to that oil future.

While Guyana may not have an immediate future as a large-scale natural gas exporter, with the volumes of gas that have been discovered, it can have a near-term very positive impact onshore Guyana. The amount of gas offshore also appears to be more than enough to meet our domestic electricity needs for many years, assuming Guyana builds a pipeline and a new power plant. As discussed previously in this column, gas is considered a much better power source than the heavy fuel oil Guyana uses right now since it is much cheaper, much cleaner and a reliable direct supply to the nation.

International organisations like the Inter-American Development Bank and the International Monetary Fund have identified a gas-fired power plant as potentially one of the most high-impact effects that Guyana’s new energy production could have on everyday life. While Guyana’s large-scale gas exporter story looks likely be well into the future, there is an exciting gas opportunity right now.