Time is of the essence: Guyana seeks to follow oil boom with gas monetisation

• Guyana faces challenge in convincing ExxonMobil and partners to move forward with gas projects
• Potential monetisation of Guyana’s gas resources includes LNG exports, but timing is crucial
• ExxonMobil in talks with government over impending requirement to relinquish 20% of Stabroek
• Relinquishing block’s acreage could open door for other developers to monetise Guyana’s gas

Oil production is booming at Guyana’s prolific offshore Stabroek block, operated by ExxonMobil. But apart from its construction of a gas pipeline that will supply a government-run power plant, the US oil major has yet to spell out exactly how and when it might monetise the block’s associated gas resources.

Guyana’s crude oil production exceeded 600,000 barrels/d in early 2024, almost double the output from a year previously. All of it comes from the Stabroek block. By 2027, ExxonMobil estimates that Guyana’s oil production will reach 1.3 million barrels/d. 

ExxonMobil announced the first major offshore oil discovery in Guyana in May 2015 after it drilled the Liza-1 well in the Stabroek block, and oil production began in December 2019. The US major has a 45% stake in the consortium to develop the block, while US corporation Hess has a 30% share and China’s CNOOC has a 25% stake. The consortium has continued to announce further discoveries, including at the Bluefin well in March.

The oil boom has turned Guyana, historically one of the poorest countries in South America, into the world’s fastest-growing economy. According to the IMF, Guyana’s GDP grew by a massive 62% in 2022 and 33% in 2023. The IMF expects its GDP to continue to grow by an average of 20% every year during 2024 to 2028.

The country’s Natural Resource Fund, the sovereign wealth fund set up to manage its oil proceeds, last year raked in over USD 1.6 billion in oil profits and royalties. Guyana has a population of only around 800,000. With over 11 billion boe estimated to be held in the Stabroek block, Guyana has more oil reserves per capita than the UAE, Saudi Arabia or Qatar, according to the IMF.

Guyana’s new-found wealth has not escaped the attention of Venezuela, which has re-asserted its historical claim to the Essequibo region, which makes up around two-thirds of Guyana’s territory. In December 2023, Venezuelan voters backed a referendum to annex the Essequibo. Venezuela’s maritime claim cuts through the Stabroek block. The International Court of Justice is hearing the case.

Gas ambition

Guyana has an estimated 17 Tcf of recoverable gas resources, primarily associated gas and condensates, but all of the gas is either reinjected or used on-site. The South American nation relies almost exclusively on heavy fuel oil (HFO) and diesel to generate electricity, but it plans to switch to natural gas. 

“Replacing existing power generation capacity with natural gas could reduce CO₂ emissions by ~50% and has the potential to reduce the cost of fuel significantly,” notes a draft version of the country’s gas monetisation strategy, published in October last year. A final version of the strategy has yet to be released. Under its Low Carbon Development Strategy, Guyana’s gas-fired generation will also be complemented by hydropower, including the planned 165 MW Amaila Falls plant, and variable renewable energy.

To put its gas resources to use, Guyana is constructing the Gas-to-Energy (GtE) project. It will connect a 12-inch pipeline from the Liza field in the Stabroek block to an onshore natural gas liquids facility and 300 MW combined cycle power plant located at the Wales Development Zone on the western bank of the Demerara River.

ExxonMobil and its consortium partners are investing approximately USD 1 billion to build the 130-mile pipeline and expect to complete it by the end of the year. The pipeline will bring ashore up to 1.4 MMcm/d of gas for the GtE project. More gas could be brought ashore for future projects, as the pipeline will have a maximum capacity of around 3.4 MMcm/d, according to documents published by ExxonMobil. The combined cycle power plant, owned and operated by the government, is set to come online in 2025.

Yet only a small proportion of Guyana’s potential gas production is expected to be absorbed by its domestic market. “Guyana has the potential to reach a peak production of more than 10 MMcm/d of associated gas only with the Liza project,” says Vinicius Romano, vice president of gas markets for Latin America at Rystad Energy. “We estimate that including other offshore projects that do not have FID (final investment decision) yet, Guyana could sustain a production higher than 35 MMcm/d for several years,” he adds.

Guyana’s gas monetisation strategy refers to LNG exports as one of the options for the country. To export gas, Guyana would be unlikely to use pipelines due to the country’s lack of gas infrastructure and its distance from any sizeable markets. The closest section of the integrated gas transmission pipeline network in neighbouring Brazil, for instance, is around 2,000 miles away.

‘Time is of the essence’

Guyana’s draft gas monetisation strategy stresses that “time is of the essence” and adds that “there is an immediate window of opportunity to monetise natural gas resources.” It notes that, according to scenarios produced by the International Energy Agency (IEA), “demand for natural gas, and thus available capital and potential investors, could be quite uncertain beyond the 2030s.”

But with six offshore projects approved so far for the Stabroek block – all of them focused on oil – gas has not been a priority for ExxonMobil and its consortium partners. The president of ExxonMobil in Guyana, Alistair Routledge, has said that aside from the GtE project, the consortium is considering gas production in the Stabroek block after 2029. Routledge told Reuters in February that ExxonMobil would evaluate the merits of a floating LNG (FLNG) facility or onshore processing plant.

A spokesperson for the oil major told LNG Business Review: “Our current focus is ensuring we deliver on our portion of the Gas-to-Energy project to help deliver the benefits of cleaner fuel, stable supply and reduced costs for the people of Guyana.”

According to the spokesperson, ExxonMobil is “seeking to understand the amount of commercially recoverable gas within the Stabroek block.” The oil major is working with the government as authorities develop the national gas monetisation strategy, the spokesperson added.

For oil and gas equity analyst Paul Sankey, president of Sankey Research, the key timeframe for Guyana is whether it might start exporting LNG before or after the US and Qatar bring a wave of new liquefaction capacity on stream. “My personal view is that they should try to do it as fast as possible. But at the same time, they should remember it’s a marathon, not a sprint, and be measured in terms of making sure they’re a reliable operator.”

Global LNG production capacity is projected to increase by around 50% by 2030. The scale of the buildout raises the risk of oversupply, particularly in the late 2020s and early 2030s, according to projections by Shell and McKinsey. This is then forecast to be followed by a period of possible undersupply.

Dominika Rzechorzek, senior oil and gas analyst at BMI, a Fitch Solutions company, believes that the anticipated glut of liquefaction capacity could ease by the time Guyana may bring an LNG project online. “If Guyana were to start producing by 2031, it seems that the market might become more tight after medium-term oversupply and that might be a better time.”

Either way, both analysts believe Guyana faces a challenge in convincing ExxonMobil and its partners to move forward with a gas project any time soon. “It’s going to remain a somewhat vague 2030-ish type proposal for a couple of years I would think,” says Sankey.

For one, ExxonMobil is likely to prioritise Golden Pass LNG project in Texas, a joint venture with QatarEnergy, where last month, the lead contractor for the project, Zachry Holdings, filed for bankruptcy.

“Obviously in the global context they’re struggling with their Golden Pass LNG project with the Qataris, which has got to be their priority,” says Sankey. “I don’t think Exxon is in a rush to pursue a new LNG project.”

ExxonMobil is also likely to prioritise oil over gas. “Looking at Exxon’s strategy more broadly outside of the US and in particular in Latin America, it’s much more oil-focused,” says Rzechorzek. She adds that there is plenty of potential for further gas discoveries offshore Guyana. “We think there is a huge upside. The question is more if the operators, and here we mean Exxon but also from the other blocks, will be willing to dive into gas-only projects.”

The consortium partners are also likely to be distracted by a dispute over the control of Hess’s 30% stake in the Stabroek block. In October last year, Chevron agreed to acquire Hess for USD 60 billion. On 6 March 2024, ExxoMobil filed an arbitration claim with the International Chamber of Commerce (ICC) in Paris, arguing that it has pre-emptive rights over Hess’s stake in the Stabroek block. Hess and CNOOC then filed parallel arbitration proceedings, which were merged on 26 March. Guyana is Hess’s best asset, so the dispute has the potential to scupper Chevron’s acquisition.

October deadline

Guyanese authorities appear to be open to the possibility of allowing other international companies to develop the country’s gas resources. “If we allow Exxon to go on their own, they may just slow the pace and tell us there is not enough for a commercial project,” Guyana’s vice president Bharrat Jagdeo told Reuters in February. “We want another international developer participating,” he added.

An upcoming contractual obligation provides Guyana with an opportunity to take back some of the Stabroek block’s acreage, potentially allowing new developers to monetise gas resources in the block.

On 27 June 2016, the government of Guyana signed the Petroleum Agreement – a production sharing agreement for the Stabroek block – with affiliates of ExxonMobil, CNOOC and Hess. The Petroleum Agreement took effect on 7 October 2016.

The Petroleum Agreement, which has been made been publicly available online by Guyana’s ministry of natural resources, includes a reference to a requirement for the Exxon-led consortium to “relinquish at the end of this first renewal period an area equal to at least 20% of the contract area.” Discovery and production areas, as well as areas under an appraisal programme, would be excluded from this requirement. The wording indicates that the end of the first renewal period would occur in October 2023.

In its Q2 ‘23 results, Hess stated that the deadline at the Stabroek block for the “relinquishment of 20% of the acreage not held by discoveries” had been extended by one year to October 2024 as a result of the Covid-19 pandemic.

In response to a question about the requirement to relinquish at least 20% of the Stabroek block acreage by October 2024, ExxonMobil’s spokesperson told LNG Business Review that talks are being held with Guyana. “We are in ongoing discussions with the government regarding those requirements, in respect to both timing and area,” the spokesperson said. - EO