August 8th, 2020 – Georgetown, Guyana – Despite the impact of market turmoil and political change, Guyanese oil has hit the market. Specifically, 85,000 barrels per day of medium crude from Liza Phase 1. Guyana has even become the source of a new crude blend – Liza Crude. With a 32-degree API and 0.5% sulphur content, Liza Crude can be compared with Brent Crude, and will be suitable for low complexity refineries close to home.
Wood Mackenzie has crafted an extensive research article which focuses on the Guyana crude oil discovered to date; it’s type, quality, refining value and market options. For those interested in this aspect of the new Guyana resource, the analysis is highly recommended. A summary follows.
The project planning and execution in the Stabroek block have resulted in industry-beating timescales, with the Liza Phase 1 development completed in record time. SBM’s Fast4Ward streamlined design concept, pre-development drilling connecting rapidly to FPSO’s, and operator expertise have all contributed to short lead times and a quick ramp-up to full production.
Liza Phase 1 was onstream and producing less than 5 years after the 2015 field discovery, placing the project firmly in the lead in terms of development timelines. With a breakeven of approximately $25 per barrel, the Liza development is among the most competitive in the world.
“WoodMac highlights the short lead time and fast ramp up on Stabroek as key to the success, a tribute to ExxonMobil competence and commitment”, said TOTALTEC CEO Lars Mangal. He added “That pace will likely continue and highlights a need for the new government to support building local capacity. It is a huge challenge to keep up, but essential that Guyana rise to it, if we are to fully benefit as a nation.”
There is some risk associated with the aggressive project development seen to date. Risks can be categorized in two broad categories; above ground (predominantly to do with global markets, and regulations and infrastructure in Guyana) and developmental (offshore infrastructure, commercialisation risk and operator capacity).
Recent political change, and delay in regulatory approvals in Guyana have already delayed ExxonMobil’s Payara development. The risk of delay caused by political forces should now be mitigated with the election results decided and a new government formed. The WoodMac analysis was generated prior to the election being decided.
There is a fundamental skills shortage in Guyana, and continued under-funding in government-led education infrastructure has led to a lack of capacity – there are simply not enough facilities to train Guyanese to participate in the broad industry requirements. Legal and regulatory frameworks are outdated, and any continued political instability ensures the updating of these frameworks may yet be some time away. The Government Stability Index has remained low since 2018’s local election triggered a vote of no confidence.
“Woodmac highlights the key risk of skills in Guyana if the country is to fully benefit from this new resource”, said Mangal. He added “It is important that an aggressive, proactive, and both short and long-term approach is taken. By that I mean get Guyanese to work immediately where possible, This is happening, the Guyana Supply Base (GYSBI) an excellent example. A number of capable people from the sugar industry have moved into the oilfield through the International Petroleum and Maritime Academy Long-term, Guyanese geoscientists should take responsibility for our country’s subsurface resources, and the government should own all the relevant data. That is a decades long effort requiring a clear plan.”
When it comes to the resource coming out of the ground offshore Guyana, the outlook is strong. The Liza Phase 1 crude is a medium grade of a high enough API and low enough sulphur content to compete with the main crudes of the region – Buzios, Lula and Mero – coming out of Brazil.
In the medium to long term, crude quality outlook will evolve in line with new discovery wells. Already, Tullow’s Joe and Jethro discovery wells are showing signs of being sub-commercial, with heavy, sour oil at 11-12 API and 4-5% sulphur content.
A promising start in the Suriname basin has since seen delays due to financial and market impact. According to WoodMac, “We expect more farm-ins into blocks with a majority partner to unlock drilling investment.”
Refining Value, and the Future of Liza Crude
Guyana currently has zero refining capacity or infrastructure onshore. Because of this, all Liza Crude will be exported immediately. 75% of all production belongs to ExxonMobil, Hess and CNOOC. The remaining 25% of production will be split between a private consortium and the Guyana government.
In March, the government opened a tender for a one-year contract to market its crude share. 21 bids were closed a month later, with 19 shortlisted as of June.
There is a reason for the high level of interest in the tender; as a medium sweet crude, Liza Crude will be well suited to a number of refineries, principally those in nearby North America, with fluid catalytic cracker configurations (FCC). Liza’s refining value has a premium on Brent of $12 per ton for US FCC refineries. This may see Liza crude become a new industry benchmark.
In the longer term, there is potential for Liza Crude to venture further afield. Refineries in Latin America and Europe may potentially benefit from an alternative to Middle East and African crudes. New capacity additions in China will likely make Asia the only market globally with increasing crude import demand. This could see Liza Crude making it much further afield than the current North America refineries.
Guyana’s Outlook – a Bright Future
The outlook for Guyana is strong. Early efficiency in project development has seen the Liza Phase 1 development achieve record time from field discovery to first oil. A medium crude, Liza Crude will in the near-term compete with nearby Brazil, with a viable market of refineries in the US and (in the longer term) globally.
Guyana has a unique opportunity, the chance to build a nation that serves as a model for the world; preserving the environment while developing, with a balanced approach to energy, in a way that serves all people.
For more information, see WoodMackenzie; https://www.woodmac.com/