As the world continues to move towards renewable sources of energy, demand for crude with low-sulphur content will continue to increase, placing producers like Guyana in an advantaged position. That coupled with the low breakeven price to produce oil in the South American country has been key to the resilience of the offshore operations in face of the economic downturn brought on by the pandemic.
Americas Market Intelligence (AMI) Analyst Arthur Deakin says the economic downturn pushed several companies to undertake divestment programmes, including ExxonMobil, Chevron, Royal Dutch Shell, BP, Total, Equinor, Eni, ConocoPhillips, among others.
“I think what we saw across the board in the oil sector and gas as well is a large write-off of the lower quality assets among the big oil companies, and that includes assets that emit more carbon emission or perhaps have a higher breakeven cost and even those projects that are in some riskier jurisdictions with political instability or regulatory lack of clarity in a sense,” he said on a local radio programme.
Deakin pointed out that Guyana and neighbouring Brazil both have high-quality, light sweet crude–that is, crude that has a low sulphur content–which is in high demand. Low-sulphur crude, he reminded, is “something that is growing in demand globally, but especially in China who is importing massive amounts of that type of oil.” This demand, he added, is compounded by the fact that currently, Guyana’s breakeven for the Liza Phase 1 production is $35 and the price is expected to go down to $25 for Phase 2 of the development.
“So, those factors combined with the appeal for high-quality crude is something that has allowed Guyana to come out somewhat on top of this pretty bad situation,” Deakin stated.
The Analyst projected that 2021 will see the demand for this light, sweet crude growing. “China is really ramping up infrastructure and construction efforts to revive its economy and it’s definitely doing a good job so far, so demand for this type of oil is going to keep growing, especially as stricter environmental regulations are passed,” he stated.
These environmental regulations that he referenced are that of the International Maritime Organisation (IMO). The IMO has implemented a requirement for ships to reduce their sulphur emissions by 80 percent. As a result, the heavier fuels which produce more sulphur emissions would no longer be in high demand, as these ships would have to instead use lighter crude such as that being produced offshore Guyana.
“The panorama is positive,” Deakin stated, pointing out that Guyana’s oil and gas industry is not likely to be immediately impacted by the transition to renewable energy.