OIL: Guyana to receive its first share of Liza oil by February 2020 – IMF

According to the International Monetary Fund (IMG), Guyana can expect to lift its first entitlement of one million barrels of crude oil as early as February 2020. Kaieteur News understands that this will occur at approximately 60-day intervals. This would also indicate that oil production is highly likely to start before the end of 2019.

The financial institution noted that while Guyana has opted to take its share of production from the Stabroek Block’s Liza One field, and market same on its own behalf, there are some crucial factors which have to be considered in the process.       

The IMF advised the government that if it is to successfully monetize oil production, it needs to be able to qualify pricing of crude oil by quality, quantity and pricing. Maximizing the sales it said, will depend on the type of sale, the sale price, the buyers and where the proceeds go.

University of Houston Instructor, Tom Mitro

The organization which is headquartered in Washington D.C noted however that currently, Guyana lacks both the capacity and technical systems to price crude oil sales. It stressed that correctly pricing oil requires an understanding of petroleum market drivers as well as basic use of hedging within a trading environment to properly evaluate and challenge prices achieved by the lifters.

This observation by the IMF is also in keeping with that of University of Houston Instructor, Tom Mitro, who had told Kaieteur News that Guyana opting to sell its share of the oil might not necessarily be the best decision at this time. He said that it would be wise to consider other options.

The official had stressed that selling crude requires a good deal of marketing expertise and Guyana would need to get people trained in order to do this effectively. Mitro cautioned that this could take several years.

Mitro also acknowledged that the advantage of Guyana selling its own oil is that the Government’s appointed managers of the oil would see and understand the market firsthand and not have to rely on Exxon to sell the crude at a price that may not be ideal. As one example, The Oil and Gas Consultant noted that Angola’s stated own oil company, Sonangol, had set up its own crude oil marketing company years ago with offices in Houston, London and Singapore.

Mitro stressed that it took quite a few years before they were able to stop relying on expatriate secondees to these operations and becoming more independent, fully staffed, managed by Angolans. “So what I am trying to tell you in simple terms is that this is a long term process,” Mitro noted.

The Oil and Gas Consultant also stressed that an alternative for Guyana is for the Department of Energy to rely on the operator being Exxon, to sell the crude. He reminded that this option is already envisioned in the Stabroek Block Production Sharing Agreement (PSA). He said that this can be done right from the beginning while noting that Exxon certainly has the expertise to do it.

The official said, “Also, this could mean the government gets to sell its share of oil on a more regular basis since its entitlement would probably be combined with Exxon’s when planning tanker loading logistics. Otherwise, they would have had to wait until their entitlement accumulates enough to comprise a full tanker size lifting.”

Mitro noted however that the problem with this approach is that the Ministry would need to be able to verify that the prices obtained are in line with the market. He said that if Exxon sells to its own downstream affiliates, that gets much more difficult to do. He stated too that Exxon will charge a fee for this, noting that this fee will most likely range from anywhere from US$.02-US$.07 per barrel.

In addition to the foregoing, Mitro asserted that Guyana’s other alternative is that the Energy Department can hire a third party crude oil marketing firm to do this for them. Mitro said, “This could mean they obtain a slightly higher price from time to time, but with the risk that the marketing firm may not be able to easily dispose of the oil at times when the market is declining as they don’t have access to refineries.” He said that this is the same risk if the Energy Department would opt to sell on its own without a marketing firm. He also stressed that the charge from a third-party firm may be even higher than what Exxon would charge.

Overall, the Oil and Gas Consultant said it makes sense for the Energy Department to develop a strategy that evolves overtime. One such strategy he suggested might involve requesting Exxon sell the government’s share over the first few years, and at the same time, request to have one of its own be seconded to the Exxon trading offices in order to learn the business. At the same time, Mitro said they can perform independent reviews or audits of the prices using publicly available pricing data from S&P Global Platts.

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Comments

  • kamtanblog  On September 26, 2019 at 4:02 am

    Interesting prognosis.
    It seems best option is for Exxon to sell
    (market) oil for Guyana government for
    a fixed fee per barrel…regardless of
    market price fluctuations. This can
    easily be monitored by govt/regulators.
    Exxon can also train Guyanese in marketing
    /monitoring operations etc
    It would be interesting to know which
    option government chooses…if there is
    a government majority on 2nd March.

    The uncertainty politically does not help

    Kamtan

  • mudhead2  On September 26, 2019 at 5:49 am

    use it well or pay the price

    • Anthony Persaud  On October 2, 2019 at 10:05 am

      Why not refine and sell the processed fuel cheaper to the Guyanese people.

      • Emanuel  On October 2, 2019 at 2:07 pm

        Anthony, your comment is ridiculous.

        1) refine it where?

        2) Guyana doesn’t have a refinery.

        2) it takes several years to build one.

        3) the cost to build a refinery can range from 5-15 USD.

        At this point in history your suggestion is nonsense. Perhaps, in time when the country can afford it, and that will be years in the future, it may be something industry and government can work on accomplishing. Not now, not practical.

        Emanuel.

      • Emanuel  On October 2, 2019 at 10:46 pm

        Correction- it’s 5-15 billion USD to build a refinery.

      • kamtanblog  On October 3, 2019 at 3:52 am

        Question
        Doesn’t Triniland already have an oil
        refinery ? Will exon not prefer to use
        it than build another in GT…which may
        flood anyway?. GT has past its sell by date,
        not fit for purpose. For decades have
        suggested it is recited nearer CJ airport
        on higher ground. Maybe exon can
        begin that move ASAP.

        We are speculating here but hopefully
        after 2 March 2020 elections the political
        jackasses will make the decisions neccessary
        to move Guyana forward into 21st century
        and beyond.

        Kamtan

      • Trevor  On October 3, 2019 at 6:58 pm

        The GoG might be barred from using a refinery for Exxon, because the contract states that Exxon has the right to use its own refineries or refinery contracts.

        The only ones getting rich are the oil companies, and God forbid, if PPP wins next year, the entire coastline from Stabroek Market to Corriverton will have Pradoville Dubai towers as high as Saudi Arabia, while the minorities live in poverty.

  • brandli62  On October 10, 2019 at 6:44 am

    Very interesting article! Personally, I would opt for the Norwegians (via the Norwegian state fund) to help manage the Guyanese share of oil. They have decades of experience of doing this with their own oil reserves. They can also be trusted. Regarding a refinery, the perspective might change given that Qatar Airways wants to develop CJIA/GEO as a regional hub for flights into South America and the Caribbean. In light of this newest development, a small, state-of-the-art refinery to provide kerosine might become commercially viable and make sense.

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