Listen: Guyanese Dream: Oil boom in Guyana could transform global crude market

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Laura Huchzermeyer 00:00:00

Hello, and welcome to the Platts Oil Markets podcast by S&P Global Commodity Insights. Today, we'll be talking about the oil boom in the small South American country of Guyana. What this development means to the region and the world as well as pricing trends and flows for Guyana's top crude grades, Liza and Unity Gold. I'm Laura Huchzermeyer, manager of the Americas crude pricing team at Platts, which is part of S&P Global Commodity Insights. And today, I'm joined by Patrick Harrington, who covers Latin American crude pricing, and Starr Spencer from our news team. It has been fascinating in the recent years to watch as Guyana has really taken off as a prolific oil-producing country. Ten years ago, not many people really would have imagined that the small country on the North Atlantic coast of South America would become one of the world's top oil producers. It was probably better known for sugar and rice production, rain forests and waterfalls and some noteworthy cricket players. But all that started to change in 2015 when oil was discovered offshore and some oil majors stepped in to go after it. Production first came online in 2019 with the original Liza Destiny production facility and new discoveries and more production has been added ever since. Patrick, you've recently visited Guyana. Can you set the scene a bit on what's happening there? Why is there so much focus on Guyana when it comes to oil and gas?

Patrick Harrington 00:01:30

That's a really great introduction. I think what's so significant about Guyana is that it's a very underdeveloped country that not a lot of people have heard about and all of a sudden, it's just exploding on the map because some crude has been discovered there and the profile for how much is going to be developed is just quite extraordinary. It's a country where in 2019, there was roughly 0 barrels per day being produced. All of a sudden, it's up to 400,000 barrels per day, and the projection is that by 2027, we're going to be at 1.2 million barrels per day of production. So it's really kind of exploded onto the oil scene, I guess, you would say.

Laura Huchzermeyer 00:02:14

And what is kind of like as a country, it's a pretty small place and they speak English there. It's kind of different for many countries in South America. You were there recently last spring. There's a lot of travel, I hear, coming back and forth.

Patrick Harrington 00:02:28

Yes. It's really interesting because the first thing, if you want to go to Guyana, that you'll discover is that it's not really easy to go there. There just are a lot of flights it's not a real popular airline route. So I think my choices were to arrive at maybe 2 in the morning or in the morning or something like that. And then all the hotels tend to be booked far in advanced. So the infrastructure has not really caught up to the potential development there, and that's really a testament to the fact that before oil was discovered, there just wasn't a lot of development in Guyana. It's a former British Colony, that kind of fell off the map really, and it has a population of less than 1 million people, has very pristine jungle and environment just because there's not a lot of people there. And there's not a lot of roads. When you land in a plane in the middle of the night and you get on the road to your hotel, you realize that the road from the international airport, the hotel zone is just kind of a narrow two-lane road with a lot of trucks on it, and it is not built out yet. So the promise of oil, I guess, is the promise of development for Guvana.

Laura Huchzermeyer 00:03:42

Yes, just sort of the telltale signs and characteristics of an oil boom region, for sure. Starr, can you tell us a little bit more and give us some detail about what upstream production and investment has been like for Guyana in recent years, which companies are the main players in the market and what makes Guyana so appealing as a place to invest.

Starr Spencer 00:04:02

As you know, ExxonMobil is the operator of the Stabroek block. And actually, that's the largest of the offshore blocks in Guyana, ExxonMobil has two partners, Hess Corporation, and CNOOC, the Chinese national offshore oil company. That's the largest block in the basin. And the partners have made 32 or 33 at this point, discoveries since 2015. There are still other players, though in other blocks. There's a couple of small Canadian companies, CxG and EcoAtlantic, and they operate in Guyana. EcoAtlantic, along with Total Energies has stakes in the Canje block, which I think Exxon operates and owns the Canje, and Canje is north of Stabroek. There are rules that Exxon is going to give back the Canje Block because they've explored on it, but I don't think they've made any discoveries on it. And EcoAtlantic also has stakes in something called the Orinduik Block to the southwest of Stabroek. The government also will have a bidding round beginning in August 2023, and Shell and Chevron were reported to be interested in that round. As for what makes Guyana so appealing as an investment basin, well, Guyana is a democracy. And as Pat noticed, it's the only English-speaking country in South America. And its legal system is based on English common law. The country also welcomes foreign investors and is proud of having such a large oil basin in its offshore regions. And it's eager to monetize it for the citizens and they create other cottage industries as well. There's just a lot of oil. In fact, with the finds so far that they've evaluated, the resource potential of the basin is 11 billion barrels of oil, and that's not including some recent finds that have been made, some of which are kind of big. So there is a lot, a lot of oil in that basin. And that's even before they've started to redevelop some of the funds. In the 1980s, there was a famous bank robber Willie Sutton on the East Coast of the US, and a reporter once asked him why he robbed banks? -- and he said, "Well, because that's where the money is." So why Guyana because that's where the oil is.

Laura Huchzermeyer 00:06:31

Yes, how much are we talking here? What is the production like now? And how much oil are we anticipating being pumped in coming years? Patrick, can you tell us about that?

Patrick Harrington 00:06:41

One interesting detail there is that the FPSOs that are currently working are all working above their nameplate capacity. So I think that the original Liza FPSO nameplate capacity was around 120,000 barrels per day. And then the second FPSO that's producing the Unity Gold crude was 220,000 barrels per day. but they're actually producing far beyond that. I mean Exxon has been saying since February that production was 380,000 barrels per day and would imminently be 400,000 barrels per day. So I think everyone's pretty comfortable with saying now production is around 400,000 barrels per day. And when the next crude to come online which is Payara, which will be coming on in the fourth quarter, once that is really pumping, production will be over 600,000 barrels per day. So it's ramping up fairly quickly.

Laura Huchzermeyer 00:07:39

So back to the point of why Guyana, can you talk a little bit about its location in the world, like what makes it a good place logistically for this to be a nice loading location for crude oil that's going around the world.

Speaker 1 00:07:56

Guyana is kind of at the top of South America. That means it's close to Panama. So you can -- through Panama, you have easy access to the US West Coast of the United States, which until recently, the bulk of Guyanese production was going to the US West Coast. And then Panama is also a waystation to export to Asia. So in the future, as we anticipate Guyana’s crude will also be in greater volumes to Asia, that gives it a good location. Also, it's logistically closer to Europe than, say, Brazil. I’ve heard that to get from Guyana to Europe is about as little as 1/3 of the time as sending a ship from Porto de Azul in Brazil. So logistically, it's in a good spot. And it's right next to Venezuela and also shares a border with Brazil to the south. And if you talk about oil reserves, I think Starr was talking about proven reserves of 11 billion barrels in Guyana. A lot of people have told me, you know what I was down there, that's just a very lowball estimate. That's an official estimate, but there's -- it's a least double that. And if you look at -- next Venezuela, Venezuela has the biggest oil reserves in the world, proven reserves of over 300 billion barrels. So it's just kind of an unscientific estimate, but it's easy to imagine that Guyana's reserves are much bigger than the official numbers.

Starr Spencer 00:09:28

As you noted earlier, we've got two field developments currently producing. A third is going to come on later this year, Payara, and a fourth will follow in I think it's 2025, Yellowtail. Uaru is the 5th in 2026, and Whiptail, which is 6, it's on the drawing board right now. I think the papers are supposed to be submitted the plan. The development plan is supposed to be submitted to the government of Guyana later this year. In other words, they've got six developments planned by 2027. And who knows after that, I mean, like Pat said, there's room for probably many more, although they aren’t really saying how many or they're just not thinking that far ahead because they're developing three right now. So that's enough for anyone. And then, of course, they've got development plans for Whiptail is the sixth. So they've got their hands full.

Laura Huchzermeyer 00:10:35

There's a lot of development on the horizon for sure. And Patrick, you've already talked some about Payara and that's supposed to be coming online later this year. How does that crude line up with the existing grades that are being produced right now out of Guyana, Liza and Unity Gold? What are we expecting quality-wise for that grade?

Patrick Harrington 00:10:46

Liza and Unity Gold are both kind of medium sweet crudes with Unity Gold expected to be a little sweeter in Liza. And we already see that in pricing, by the way. What we're hearing is that Unity Gold is about a premium of 30 cents per barrel above Liza. I should say that we have an assessment for Liza, we've had an assessment for Liza since 2021. And we've just launched a new assessment of Unity Gold on August 1. And what we're hearing is that Payara will be a little heavier, so it should be at a discount to both of those crudes.

Laura Huchzermeyer 00:11:29

And these are all being marketed separately, right? There are different grades, different prices being marketed to different buyers.

Patrick Harrington 00:11:37

I mean I think that's all kind of in flux. I mean what we were hearing initially is that Unity Gold and Liza were being offered the same price point as refiners kind of developed a preference for one or the other, it kind of settled in that Unity Gold was considered a little bit of a higher value crude than Liza, not by much, but again, what we're hearing is about 30 cents a barrel above Liza.

Laura Huchzermeyer 00:12:07

With production growing and these new grades being introduced, that means that the world has the new growing choices when looking to purchase crude for the refineries. Which countries and regions tend to be the top buyers right now for Liza and Unity Gold?

Patrick Harrington 00:12:22

Well, I think I mentioned earlier that initially the US West Coast of the United States was the primary destination. But in recent months, we've seen, especially after the Russian sanctions, Europe just slightly edging out the US West Coast as the primary export destination for Guyanan barrels, with the US West Coast just a narrow second. And some interesting buyers also in there like Brazil has been buying some games crude, which is kind of almost seems counterintuitive, especially as Guyana’s production ramps up, Guyana and Brazilian crude will be really head-to-head competition, but Petrobras is also a buyer. But primary export destinations at the moment are Europe and the West Coast of the United States.

Laura Huchzermeyer 00:13:14

And these are all exported. At least for now, Guyana does not have its own refinery. So they're sending 100% of their barrels elsewhere.

Patrick Harrington 00:13:23

Yes. As far as I know, yes, there's not a real big demand in Guyana, I mean they have cars and they drive around. It's not really being consumed domestically.

Laura Huchzermeyer 00:13:33

What else is happening around all of this, can you set the scene for us on what's happening elsewhere in Latin America and even in Canada, things that are happening, happening in the background and impacting prices and flows for Guyanan crude as well as other grades?

Patrick Harrington 00:13:52

Nothing exists in the vacuum. So one interesting thing to note is that as Guyana’s production really explodes, that crude is coming into the market in the time of flux especially in crude flows into North America. Part of that story is the Trans Mountain pipeline expansion in Canada where probably in the second quarter of next year, there's going to be an additional 590,000 barrels of export capacity added on to an existing pipeline out of the oil sands of Canada, the Canadian West Coast. So where those additional barrels are going to go has the potential to shake up crude flows because if all of a sudden, you have an additional 200,000 barrels per day or 300,000 barrels per day coming down from the Canadian oil sands on to the US West Coast, that's going to start displacing Latin American crudes that have typically gone there. And at the same time, you've got an explosion in exports from Guyana trying to find the home. At the same time, production in Argentina might be ramping up. There are projections that Argentina’s light sweet Medanito crude, those exports are going to get close to around 1 million barrels per day by 2027 as well. There's a little bit more uncertainty there. But those are additional barrels that typically have gone to the West Coast of the United States that are getting into this competitive mix. And we're also seeing kind of a shakeup or a reorientation of what we thought of as the crude landscape in Latin America, even though Guyana doesn't really think of itself as Latin America. Physically, it's there in Latin America. So the traditional big producers in Latin America -- Venezuela, Mexico, Colombia, Ecuador -- they're all having some problems. Venezuela exports have kind of fallen off the map, Colombia, Ecuador, Mexico are in decline, but Argentina, Guyana and Brazil, at least Brazil for now are set. So you have a shakeup in the traditional Latin American production mix as well as a shakeup in really North American crude flows with the Trans Mountain expansion coming online. So it's an interesting time to be watching where oil is being produced and where it's going. There's a lot of pieces in play as always.

Laura Huchzermeyer 00:16:26

Yes. Great. Starr, is there anything you're going to be looking out for moving forward on the production side, on the exploration side, anything that you're really just watching to see from those companies?

Starr Spencer 00:16:39

I believe Exxon has -- don't remember if it's four or five rigs running offshore rigs, doing not only exploration but appraisal and drilling development wells as well, on the fields that are being developed. Yes, there's going to be some appraisal and also, I think, exploration, but certainly some probes in any case, one way or the other, on the southwest part of the block. Now the Stabroek block is sort of interesting shape. It's kind of a jagged looking thing. Think of a saw and think of two saws and think of two saws’ edges that run in a direction northwest to southeast. And that's the Stabroek block. Well, on the Southeast portion is where the overwhelming majority of the discoveries have been. Looking over to the southwest portion, though, there's a couple of discoveries there. But apparently, that's a gassier, slightly gassier area. We really don't know at this point. Hess said just the other day in its second quarter conference call that partners are going to be doing some appraisal of that area in the Southwest just to determine the GOR, which is the gas-to-oil ratio there, of the crude and whether they want to develop there going forward because one of the Hess top officials said that right now they're really pushing oil development, really not gas. Although they are, I believe, building a pipeline, a gas pipeline. Eventually, they're going to be developing gas there, which should be very interesting because there's also a lot of gas that comes up with the oil. And I don't know if there's a lot of gas in Guyana, but typically, that's what you have in exploration and production. So that's one thing I'm looking for. And I'd also like to -- the northwest portion of the block, there's only one discovery that I know about -- well, that they've made, I think it's called Hammerhead. And I'm not sure why they haven't done more exploration there. Just maybe the Southeast is more prolific, but there are so many finds there, so many discoveries in the Southeast that when we do maps of Guyana in our stories, there's really not room enough to put all the names there. But there's other parts of the block, but just the Southeast has been so prolific. The other thing is there's a big discovery that was made, I believe it was last year, called Fangtooth. And that's supposed to be a very big discovery also. So I'm looking to see if maybe, maybe, maybe that might be the seventh development, but they don't really speak ahead of the -- the five that they’ve sanctioned and then Whiptail, which is probably going to be sanctioned at some point. But Fangtooth is a big discovery. So I'm looking forward to seeing how that's going to fit in the queue of discoveries and development.

Laura Huchzermeyer 00:19:40

And you already mentioned the offshore exploration block auction that's going to be happening in August. And we could possibly see some other companies getting involved in Guyana, right?

Starr Spencer 00:19:53

Yes. I think I mentioned that Shell and was it Chevron were reported to be possibly interested in getting into the country, yeah, now that it's been so developed, right? But like I mentioned that there's a couple of small Canadian juniors that have gotten involved. My gut feeling is that it really takes companies with the expertise in the offshore history of developing in deepwater to bring these things to fruition because as you know, Exxon started making discoveries in Guyana in 2015, and it brought the first Liza phase on in 4.5 years. And the ones that are being sanctioned -- the subsequent ones, Liza 2 only took three years from sanction to first oil, and Payara is going to take about three years from sanction to the first oil also. So that's an astounding record. That's a multiyear and sometimes even as long as a decade proposition from discovery to to first oil, to coming online. In fact, there's a couple of developments that were made in 2005 or 6 or 7, and they're still not online yet because they were made at such deep depth that we didn't have the technology. Now these aren’t very deep depths. I think there are something like in the 4,000 or 5,000 foot range water depth. So not terribly deep. So it's probably not a technical problem, but it does need technical know-how to be able to be able to bring these on in a timely manner. And there's been a couple of discoveries elsewhere than the Stabroek block that were made, well, years ago, anyway, say, six or seven years ago, and they still haven't been brought on. And I think it's because the companies are just small companies, and they just don't really have that technical know-how just yet.

Patrick Harrington 00:21:44

So just to remind everyone, we do have an existing assessment for Liza crude again that we started in February of 2021. And then just on August 1, we launched another assessment, which is based on an FOB basis. And both of those assessments are for 1 million barrels. And we're really excited about it because we want to see how these two grades price differently in the market. It’ll be really interesting to see how that data shapes out. And as these crudes start going, hopefully, or what we think will probably go increasingly to Asia and on to Europe, how refineries are really going to value them. And of course, Payara comes online later this year, it will be interesting to see how that fits into the mix. We expect it to be cheaper because just on an assay basis, it's a heavier crude.

Laura Huchzermeyer 00:22:41

And since we've been talking about Guyana's Unity Gold and Liza crudes, will link the codes for that content in Platts Dimensions Pro in our show notes. Those assessments and those codes can be found in Oilgram Price Report, Platts Dimensions Pro, Crude Oil Marketwire and Latin America Wire. Thanks again, Patrick and Starr for joining me in this conversation, and thank you to our listeners for tuning in. This Platts Oil Markets Podcast episode was produced by Jennifer Pedrick in Houston.