UK-based global energy consulting group Wood Mackenzie says Guyana is in a unique position as the world’s newest major oil producer. Other oil- and gas-dependent producers are contemplating the threat posed by the energy transition to their economy. Guyana’s oil, only just being commercialised, promises to transform the nation’s wealth.
Guyana’s oil fields are prodigious. ExxonMobil and its partners, Hess and CNOOC Ltd, upgraded reserves on the golden Stabroek block by 25% earlier this year. WoodMac said its analysis models almost 6 billion barrels of oil and phased development will lift output to over 1.1 million b/d by 2028. Guyana, it said, will become just the 11th nation in oil’s history to reach the million b/d milestone.
These barrels are mostly light, meeting the market’s increasing need for relatively low-carbon-intensity liquids. They are also low cost – the breakeven of under US$30/bbl (NPV10) competes with the very best new projects, conventional or unconventional.
“The giant oil fields will deliver untold riches to this nation of only 0.8 million people,” WoodMac said, adding that Guyana will, as output builds, rise to be king of the heap. “Production per capita will eclipse even that of the leading Middle East producers, Kuwait, UAE and Saudi Arabia.”
The country’s economy will be transformed as annual capital expenditure on the project will average US$4 billion a year this decade – the same as 2019 GDP. Much will be spent on production equipment outside Guyana, but considerable investment will flow into infrastructure onshore and offshore to support the growing oil industry.
Revenue from royalty and tax starts flowing this year and climbs progressively to an annual peak of US$13 billion by 2029 based on WoodMac’s calculations. Annual tax income will average US$7 billion over the next 20 years – almost double 2019 GDP. After averaging 2.9% annually this century, Wood Mackenzie forecasts a 78% rise in 2020; adding more to GDP in one year than the economy has accumulated since 1960.
WoodMac said it is still early days for Guyana’s oil and gas industry and revenue may, in time, be much greater than it suggests. “There’s no sign that success with the drill bit is waning and there are plenty of exploration wells to be drilled. Our fiscal estimates also exclude 2 billion boe of discovered gas and condensate reserves for which there is no plan yet for commercialization,” WoodMac said.
Guyana may well be the last new major oil-producing nation. What’s important now is that critical lessons are learned from those who have gone before. There’s a long list of developing countries, including some in Latin America, which have struck black gold and failed to make the most of it, suffering what economist Richard Auty called ‘the resource curse’.
The new government has a major challenge ahead, and a heavy responsibility to its people, to get it right.