An oil supply shortfall is coming and with OPEC+ expected to provide just a fraction of the demand, barrels from producers outside of the alliance, such as Guyana, would be needed even more. Already, dated Brent has soared past $75 a barrel – a two year high – as inventories continue to fall and demand picks up.
This scenario has seen analysts predict the return of a $100 a barrel oil price which would be the highest since Guyana began producing crude at the Liza Phase 1 Development in December 2019. This would see the Guyana government raking in around US$100 million per oil lift.
The OPEC alliance will meet next week where it is expected to revive some more of its halted output, according to a Bloomberg survey, and delegates from the group say discussions are already underway. Yet with Riyadh determined to proceed cautiously, market watchers expect any increase to leave the market wanting more.
“This market’s on fire,” Bill Farren-Price, a director at research firm Enverus, was quoted by Bloomberg as saying. “The Saudis don’t seem inclined to signal a substantial increase in supplies. But even if OPEC+ adds barrels, prices are going to stay strong.”
According to S&P Global Platts, members will be keen to capture some of the rising demand for oil, without pushing prices down, while they also await the outcome of the stalled US-Iran nuclear deal negotiations.
“Given the more than 5 million b/d spare capacity at the alliance’s disposal, an excessive output increase could have catastrophic repercussions, but it is implausible that the group would jeopardize the achievements of the past year or so by raising production irresponsibly,” said Tamas Varga, an analyst with brokerage PVM Associates.
Market observers widely expect that a hike of some kind will be agreed next week, with the extra supply hitting the market in August. All but two of 15 analysts, traders and refiners in a global survey by Bloomberg News predicted that the coalition will tap its sizable spare production capacity.
Yet the average increase they forecast for August was about 510,000 barrels a day — barely a quarter of the global supply deficit that OPEC+ itself anticipates during that month.
Hess corporation, a co-venturer at the ExxonMobil-operated Stabroek Block has said once an issue with the gas compressor on the Liza Destiny FPSO is resolved, production could ramp up in July.
“We will be able to walk the production up somewhere between 120,000 barrels of oil per day to 130,000 barrels of oil per day. And then in November of this year, we will do two things, we will take a shut down and we’ll install a new design flash gas compressor to hopefully get it more reliable,” said Greg Hill, Chief Operating Officer (COO) at Hess.
He also pointed out that the second most important objective of the November shut down would be to debottleneck or optimize the Liza Destiny FPSO facility to have a new nameplate of somewhere between 140,000 to 150,000 barrels of oil per day.
Coming at a time when the world is gradually reopening as vaccination campaigns intensify, additional barrels from Guyana will be welcomed on the global market and would see the country’s revenue from exports increase. Already, it is expected that by the end of this year, the Natural Resources Fund would be holding well over half a billion U.S. dollars.