INTERNATIONAL prices for Brent Crude, an international benchmark for oil, passed US$80 per barrel last week, surpassing pre-pandemic prices in early 2019. Major oil importers like China and the UK are already grappling with the impacts of high prices coupled with the continuing supply and labour shortages from the COVID-19 pandemic. But for new producers like Guyana, the upward trend in prices means something very different.
For the first time in Guyana’s history, the country is headed rapidly towards energy independence. Thanks to growing oil production offshore and the discovery of large associated gas reserves, Guyana’s relationship with the international energy markets is in the process of fundamentally changing in a way that gives Guyana significantly more power over its own destiny.
Historically, like many Caribbean countries, Guyana has been extremely energy dependent. With this reliance comes challenges. International shortages, price fluctuations, and supply chain challenges in the global oil markets have serious and unavoidable impacts on countries which import nearly all of their energy, and rely on imported fuel oil for electricity, as Guyana has done.
The unpredictability of international energy markets makes it more difficult and expensive for households and businesses to operate efficiently. Many countries in the Caribbean suffer from the same challenges, with only a few exceptions like Trinidad.
But Guyana’s new role as a significant oil producer changes the equation radically. Historically high oil prices simply meant higher costs for households. Now, high oil prices mean more revenues. In 2020, Rystad Energy, a global oil and gas consulting firm, analysed revenue outcomes at different oil prices for Guyana.
The price reached last week, US$80 per barrel, was the highest one they considered. At that level, they estimated Guyana would win US$310 billion over the life cycle of its oil reserves. But now it looks like that price level may not only linger, but that it could even be surpassed. Analysts at Goldman Sachs are now expecting oil prices to rise to US$90 per barrel by the end of 2021, which would put Guyana above Rystad’s most generous revenue scenario. While this might mean higher prices for drivers, since Guyana will still have to import refined products like gasoline, it also means significantly more wealth to spend on increasing living standards.
The government is already making plans to update aging infrastructure and invest in new social programmes to make use of the US $400 million it has already made from oil in just a year of production. A sustained period of high prices could give the country even more options, especially if those prices coincide with production doubling or tripling in the next few years as Liza Phase 2 and Payara begin operation.
Guyana’s new status as a domestic producer could shift this situation in electricity as well, by ending dependence on imported heavy fuel oil. Traditionally Guyana Power & Light (GPL) has relied on this fuel to run its power plants and has been forced to pay market prices for fuel oil, which closely track those for crude.
But now Guyana is set to end that reliance and fuel its electrical grid locally. The Government’s plans to build a gas to power plant to take advantage of domestically produced natural gas and invest in a hydropower plant at Amaila Falls would not only make electricity cheaper and more reliable, but also end dependence on foreign sources.
More affordable and reliable electricity will also have positive impacts on Guyanese throughout the country. The World Bank has cited high electricity costs as one of the primary barriers to business investment and growth for the country. President Irfaan Ali recently stated that the gas to power project could cut electricity prices by as much as 60 percent, lowering costs for households across the country.
This new independence and Guyana’s new position as a major energy exporter will also give it a larger role on the international stage to engage and work with other global producers during shortages or times of higher demand. After decades of reliance on imported energy sources, Guyana’s situation is improving.