Understanding Energy | Coronavirus’s likely impact on local oil industry


GUYANA’s airports are closed. Countries all around the world are encouraging citizens to distance themselves from others and remain at home. Businesses are closing and airlines are shuttering routes as travel becomes difficult.

Although overshadowed here until recently by elections drama, Coronavirus (also called COVID-19) will likely have profound impacts for months. Our nascent oil industry will not escape these impacts. Already reeling from an oil price collapse, global energy companies will have many hard choices to make.

Exxon presents a good case study as the operator of the Stabroek Block and the only company currently producing oil commercially in Guyana. Its operations here could be hit hard by things like travel restrictions that make it difficult for drillers, engineers and other critical personnel to travel into Guyana.

The behind-the-scenes logistics of just moving the right materials, technology and manpower across the world to build and operate enormous floating engineering marvels is extensive at the best of times. In emergencies like this when global supply chains are disrupted, borders are closed and transportation is hard to find, keeping that web of logistics moving will be an immense task and any lapse could cripple operations.

Companies will be looking closely at the capacity of local medical facilities, especially if they’re overwhelmed by Coronavirus patients. If they believe they don’t have a safe place to send workers in the event of an injury or the ability to medivac if the injury is more serious, companies could scale back or even halt operations.

Ensuring that their workers have access to good medical care and the ability to move freely and safely inside and outside the country are the sorts of above-ground risks that oil companies and others with international operations factor in to their “above-ground” risks when they set up operations.

“Above-ground risk”—the conditions that companies have to deal with beyond geology and other oil and gas exploration considerations—are factors that must be considered when making investment decisions because they can significantly impact the economics of their projects. These factors can include border disputes and chaotic political situations but also constantly-changing regulatory and contract terms. And they include natural disasters like hurricanes, industrial accidents and pandemics like the Coronavirus or SARS.

As a critical supplier to almost every industry—including healthcare and first responders—the oil and gas industry does all it can to work through these events safely and responsibly to maintain production. Companies in the industry tend to have long histories of adapting to and working around unpredictable situations while keeping workers and operations safe.
But it is not by happenstance. Oil majors like ExxonMobil have long emphasized preparedness. Well trained emergency response teams are the norm and scenario planning and a variety of regular drills are common practice.

Nonetheless, the current situation is unprecedented and could profoundly reshape life for months. The steps that Guyana is already taking to stem the infection, like designating quarantine sites, closing schools and businesses and more will hopefully help slow the spread here. But the government needs to closely monitor the situation to avoid the kind of widespread infection that we are seeing in Europe and the United States.

The industry is implementing its own measures, both in terms of safety and finances. Guyana’s development timeline has been extremely aggressive so far in order to maximize how much revenue we can receive in the near term. But moving forward, travel is likely to be limited to only the most essential personnel, slowing down operations. Project development and exploration will likely slow too as additional checks and containment measures are put in place.

A persistent low oil price environment caused by Coronavirus and the price war between Russia and Saudi Arabia that erupted last week might mean investments and new projects will be scaled back even for the largest operators like Exxon.

At this point, many of these forces are simply out of Guyana’s hands.
But common-sense precautions like social distancing, strong enforcement of quarantines and border controls and preparing our healthcare system can all help further insulate both Guyana and our new oil industry and give it the best chance of adapting to a changed world.