–as oil prices reach highest level in seven years

WITH global oil prices now at the highest level in seven years, Guyana’s prospects of earning more money from its next oil lift is greater than ever before.

At end of Tuesday, the cost for Brent – the benchmark Guyana uses to sell its crude – stood at approximately US$86 per barrel. Should this remain the case when the country sells its ninth one-million-barrels of oil in the coming weeks, the sale could rake in as much as US$86 million.

This would mark a notable increase from the US$73.8 million received from the eighth oil lift in November. This brought Guyana’s total oil revenues to approximately US$607.8 million.
According to an article published by Rueters, oil prices have climbed amid what is projected to be a year of “tight supply.”

In the coming years, Guyana is looking to position itself as a key producer with the capacity to cushion some of the supply shortfalls on the global market.

Currently, Guyana’s oil resources of more than 10 billion barrels is only being serviced by the Liza Destiny Floating Production Storage and Offloading (FPSO) vessel, which continues to operate in the very lucrative Stabroek Block, offshore Guyana.

It was during a recent interview that Natural Resources Minister, Vickram Bharrat, said that Guyana’s second oil ship, the Liza Unity, is also gearing up to come on stream, as planned, before the end of the first quarter of 2022.

Once this happens, Minister Bharrat estimates that Guyana’s oil lifts will become as frequent as once every two months. The Liza Unity vessel, twice the size of its sister ship, the Liza Destiny, was built to produce 220,000 barrels of oil per day, with an overall storage volume of up to two million barrels.

But Guyana is not stopping there. Minister Bharrat projected that by 2026, the oil and gas industry will be serviced by a fleet of four FPSOs, which would have the capacity to facilitate as much as 50 oil lifts per year, at one million barrels per lift.

In the coming years, both the Liza Destiny and the Liza Unity will be supported by the Prosperity FPSO which is under construction in Singapore and the Yellowtail FPSO, which is slated to come on stream by 2026. By that time, the minister estimates that proceeds from oil and gas will be “mind-blowing.”

Further, should the cost of Brent crude continue to hover at more than US$80 a barrel, Guyana would be poised to earn at least US$4 billion or G$836.9 billion by the end of each year. To paint an even clearer picture, oil proceeds by 2026 will be about twice the size of the 2021 national budget, which totalled $383 billion in 2021.

Ever since Guyana sold its first one million barrels of crude in February 2020, for nearly US$55 million, the account, housed in the US Federal Reserve Bank, has remained untouched. However, the government’s passage of a new Natural Resources Fund (NRF) legislation paves the way for the government to begin spending.

In the first instance, Guyana will be able to withdraw 100 per cent of the funds contained in the NRF. Thereafter, a cap would be instituted, taking effect at 75 per cent of the initially withdrawn amount, followed by 50 per cent, then 25 per cent, five per cent, and finally, at three per cent.

It is currently unclear as to when the People’s Progressive Party/Civic (PPP/C) government intends to begin spending from the fund, but what is known is that the administration held off from dipping into the petroleum revenues, pending modifications to the “flawed” NRF 2019 legislation.

Not only was the 2019 Bill passed in the absence of the then PPP/C opposition, but it was signed into law by a government which was practically in “caretaker” mode, since the then A Partnership for National Unity + Alliance For Change (APNU+AFC) administration had already been toppled by the passage of a no-confidence motion in the National Assembly.

REMEDIED WITH URGENCY
When the Dr. Irfaan Ali-led administration assumed office in August 2020, following a six-month long elections debacle, it vowed to ensure that critical issues to the legislation were remedied with urgency.

As a result, a new NRF legislation was crafted with the input of key stakeholders including the private sector and civil society. A few weeks ago, in December, the 2019 NRF law was replaced with the 2021 legislation, amid a massive ruckus created by the now APNU+AFC opposition.

Eventually, even an attempt to steal the Speaker’s Mace and the abuse of Parliament staff were not enough to prevent passage of the new law, which sought to impose strict and transparent guidelines on how the oil revenues are to be spent.

It also limits the powers of the Minister of Finance, whilst instituting hefty penalties for breaches, especially as it relates to non-disclosures of the country’s petroleum earnings.
Additionally, the new law introduced the aforementioned caps to ensure that withdrawals are done in a fiscally responsible manner, which guarantees savings for the benefit of generations.

The new law also ensures that withdrawals from the NRF benefit from both pre and post parliamentary scrutiny, since all spending has to be clearly outlined in the national budget.

This means that programmes being funded by oil revenues have to first be approved by the National Assembly, after which its implementation is audited by the Audit Office; any discrepancies detected are then compiled and forwarded to the opposition-led parliamentary Public Accounts Committee for further scrutiny.

Additionally, the new law stipulates that the oil revenues could only be used to finance developmental projects. More specifically, President Ali had pledged to ensure that Guyana does not become reliant on the oil sector.
On the contrary, he said that the oil earnings will be invested in the development of critical non-oil sectors such as education, agriculture, health and social services, among other things.

With 27 lucrative discoveries, and a massive drilling campaign still to come, Guyana, one of the world’s fastest growing economies, is pegged to have quite a bright future, especially with the implementation of other important pieces of legislation such as the one to govern local content.

Guyana remains poised to become a major supplier within the global oil market, at least for the next 100 years, according to experts.