EARLIER this week, we learned that Guyana earned more than US$96 million in revenues from its most recent oil cargo sale, the highest amount yet since Guyana started producing and exporting in December 2019. This sale increases the country’s overall returns from Liza crude to more than US$719 million. For context, the same one million barrels of oil earned US$73 million in December 2021.
The world has seen a wave of high global oil prices caused by growing demand and the Russian invasion of Ukraine. The supply disruptions and sanctions stemming from the crisis sent prices to more than US$130 per barrel of Brent crude—an international benchmark—before falling slightly to hover around US$100 this week.
While Guyana will reap the benefits of higher oil prices in earnings from oil sales, it has not been spared from the effects of the global price increase for finished products like gasoline and automotive diesel, which has climbed north of GY$204 per litre in the last week. There are many factors that ultimately contribute to the price at the pump, including many outside of Guyana’s control like the Russia-Ukraine war, sanctions and the costs of refining, transportation, and distribution during a broad global supply chain crisis.
However, being an oil producer can help offset oil price increases by bringing in more revenues and by reducing the reliance on imported energy.
The planned gas to energy project, in particular, should help reduce Guyana’s dependence on imported fuels over time. When operational, the gas to power plant at the Wales Development Zone will supply electricity to large parts of the country, insulating customers from high prices on the international market. The Guyana Power and Light Company currently relies on expensive and imported heavy fuel oil to generate power, which tracks the global price of crude oil.
The outlook for Guyana’s earnings this year is also quite positive. With two FPSOs now in production, Guyana can expect to significantly improve upon the nine million barrels it shipped through the end of 2021. If the price of oil remains high over the next several months, there could be significantly more funds available to Guyana in the Natural Resource Fund (NRF) to pay for critical projects like roads, schools, bridges and hospitals. The next cargo sale could earn over US$100 million if prices remain above US$100 per barrel.
Production is ramping up at the Stabroek Block with the production ship Liza Unity now producing the lighter, sweeter “Unity Gold” grade of crude oil. This oil is likely to trade at a slightly higher premium given its lower Sulphur content, which reduces the amount of energy needed to refine it into finished products. Total production is expected to reach up to 220,000 barrels per day bringing the total capacity to just under 350,000 barrels per day by the end of the year.
This is good timing for Guyana, especially as markets look for stable and democratic sources for oil to help reduce their dependence on Russia. The world needs oil for the foreseeable future and, according to Arthur Deakin, an energy analyst, “over 50 per cent of the oil produced in the world takes place within authoritarian regimes, with Russia and Saudi Arabia alone account[ing] for over 20 per cent of global oil production.” Emerging democratic oil producers like Ghana, Guyana and Suriname stand to gain from the ongoing shunning of Russian oil.
If that demand remains strong and prices remain high, Guyana will continue to be well positioned to maximise its revenues.
Earlier estimates from Rystad Energy pegged Guyana’s total revenues at more than US$310 billion at prices of US$80 per barrel. With crude oil prices lingering even higher, President Irfaan Ali recently expressed optimism that “by 2025 the Guyanese oil-and-gas sector could be expected to reach a US$3.5 billion in operating cash flow.” With 28 commercial discoveries and counting in the Stabroek Block alone, the prospects for Guyana’s burgeoning oil industry are only likely to grow.