The oil being produced offshore Guyana is a low sulphur high-quality blend which together with lower breakeven costs, will continue to benefit from investor interest and high demand, given the shift from heavier fuels due to environmental regulations and controls. The favourable conditions in Guyana also mean companies can continue to operate in an environment with lower demand and a longer than anticipated recovery, as a result of the global pandemic.
Americas Market Intelligence (AMI) Analyst Arthur Deakin, in a recent article, reminded of the International Maritime Organization’s new requirement for ships to reduce their sulphur emissions by 80 percent. Heavier fuels produce more emissions, meaning that these ships would have to instead use light sweet crude like that which is being produced offshore Guyana at the Stabroek Block.
“In Latin America, these stricter fuel emission policies and tighter environmental controls have increased the demand for light sweet crude oil, a fuel with low sulfur content that is less harmful to the ecosystem,” he stated. “Brazil and Guyana, Latin American countries with high quality crude, have an abundance of clean oil and will benefit from this regulatory shift.”
He noted that other producers in the region, including Venezuela, Colombia, Ecuador, and Peru, produce heavy sour crude, and as a result of these regulations, the demand for their crude has taken a dive.
“Latin American countries producing heavier crude are also suffering from lower oil prices and higher breakeven costs, subsequently limiting foreign investment in exploration and production,” He said. “Colombia, for example, saw a 37 percent decline in Foreign Direct Investment (FDI) in its hydrocarbons sector. In Peru, FDI fell 72 percent in the first semester as the country shut down its economy.”
Because of these circumstances, he said these oil-producing nations are not attractive to investors who will in turn likely look to other countries, especially those with low breakeven costs such as Guyana.
The Liza Phase 1 development has a breakeven of $45, Liza Phase 2 – $25 and Payara, the third offshore development in Guyana – $32.
“While producers of heavy crude attempt to regain their footing in a changing global environment, Brazil and Guyana are capitalizing on their lower breakeven costs and high-quality petroleum,” Deakin said.