By Arthur Deakin
News Americas, WASHINGTON, DC, Fri. March 4, 2022: For those who follow Guyana, the success rate and speed with which its oil resources have been developed is unparalleled. 11% of all conventional oil found in the world since 2015 is found offshore Georgetown. In fact, discoveries have been so impressive and consistent in the Guyana-Suriname Basin that they have created a numbing effect – operators and investors almost expect new discoveries to be made on a monthly basis.
But rather than praising the remarkable findings and projections, as a consultancy that works to ensure successful client engagements in Latin America, AMI wanted to briefly address some of the risks and opportunities facing investors in Guyana. . This research has given us a clear view of which sectors in Guyana are expected to do best in the next 5-20 years.
Figure 1: AMI risk analysis of the main sectors in French Guiana
As a means of comparison with another frontier market in the region, AMI also applied its risk analysis to Suriname’s oil and gas industry. Suriname’s oil and gas sector was identified as “medium to high risk” due to its difficult economic situation, relatively unproven oil discoveries, unclear local content policies, and a history of corruption and corruption. mismanagement by the government.
As we have seen in many other frontier oil markets, and even in more developed jurisdictions such as the pre-salt fields of Brazil, the CapEx required for exploration often reaches hundreds of millions of dollars before a significant discovery is made. This was the case in Guyana before 2015, which led to the sale of Shell’s stake in the Stabroek block. In many other cases, no discoveries are made after decades of drilling, forcing companies to return home with billion-dollar losses and nothing to show for it. Suriname has made some discoveries in blocks 58 and 52, but it remains a relatively green and risky jurisdiction.
Compared to Suriname’s oil and gas industry, all sectors in Guyana performed well, with mining being the only one to fall into the medium risk category. Guyana’s strong performance is the result of its proven oil and gas discoveries, projected economic growth, relatively stable regulatory frameworks and limited opposition from its local community. Sectors such as renewable energy, agriculture, logistics and real estate were all considered “low risk”, while insurance, manufacturing and oil and gas fell into the “low risk” categories. low to medium risk.
Although the oil and gas sector generates much larger revenues than the renewable energy sector in Guyana, it is also a much larger target for political and local interference. There is no local capacity to match its development and the government is already reporting tighter production sharing agreements (PSAs), a worrying sign for investors. On the contrary, renewable energy enjoys both government and public support, making it Guyana’s greatest opportunity versus risk.
Currently, the government is actively seeking renewable energy developers and investors to meet the triple growth in power demand expected by 2026. 300MW in Wales, but this project needs to be complemented by waste-to-energy solutions, solar panels in the hinterland, mid-sized hydro projects and wind power off the Atlantic .
The renewable energy sector also includes opportunities related to the much-needed decentralization of the grid, such as battery storage and the development of micro-grids, two important tools for electrifying rural areas, preventing blackouts and providing power. closes to compensate for intermittency. Guyana could also use its 16 trillion cubic feet of gas to produce blue hydrogen, which uses natural gas and carbon capture technology to produce the clean fuel. Production would be possible if the public and private sectors developed an eco-industrial park connected to the proposed gas-to-energy plant, allowing Guyana to clean up its grid while promoting industrialization.
Despite the attractiveness of the renewable sector, investors should not forget the challenges posed by these projects. Sometimes bureaucracy, inadequate network infrastructure and land disputes with local communities delay the approval of such projects. To mitigate these risks, the government needs to create the right subsidies and the right framework to attract large-scale investment in the sector.
More broadly, looking at AMI’s 10 risk categories, the analysis suggests that operational risk, closely followed by associated risk, are the top two concerns for businesses and investors. Operational risk considers whether there is sufficient local capacity and infrastructure for project development. And the second most important risk, partner risk, measures the likelihood that a local partner will successfully meet its obligations and commitments.
In both Guyana and Suriname, there is still a significant gap between local labor capacity and expected demand. The Ali administration has repeatedly underscored this point by saying that Guyana is close to full employment even though only two of the 10 potentially operational FPSOs are currently operational. Investors and energy operators agree that the biggest development challenge in Guyana is the lack of human capital.
That’s not to say that Guyana lacks qualified businesses or that its people can’t rise to the challenge. On the contrary, after attending the Guyana Energy Conference two weeks ago, the people of Guyana have again emphasized that they are extremely eager and willing to participate in this economic transformation. Sometimes all they need is a foreign company to jump in and use their services. Thorough due diligence and good relationships will help foreign companies find the right partners and limit reputational issues. Better education, starting with investments at the primary level, as well as a more flexible immigration policy, are also essential to develop local capacity.
Guyana’s relatively low level of oil and gas ‘transition risk’, which measures the impact on the sector in a net zero world, may seem surprising. But its score is driven by the country’s low breakeven costs, attractive regulatory framework, high-quality crude and impressive drilling success rates.
Despite these positive attributes, there is still great value in transforming Guyana into a new type of oil and gas producer: a producer in which fossil fuel production is combined with carbon capture technologies, cleaner energy and nature-based solutions. This will allow Guyana’s energy sector to be favored over other dirtier, less profitable and riskier jurisdictions. To ensure this happens quickly and is feasible, the government needs to develop carbon credits and put a price on carbon.
Guyana is off to a good start with the early creation of its sovereign wealth fund and local content policy, but the government should also work with the private sector to develop better infrastructure, create a more robust healthcare system and significantly improve its health. education. This will require large investments that will be accelerated through free trade zones, tax credits, grants and government guaranteed loans to eligible businesses and investors.
Although bordering countries should have the right to extract their resources, especially if they can significantly improve the standard of living of their people, they must limit their carbon footprint and ensure that revenues are spent transparently. Guyana seems to be on the right track and is well placed to transform its economy and the wider region. However, he must be careful not to get lost in the headlights of this newfound popularity.
EDITOR’S NOTE: Arthur Deakin is co-director of AMI’s energy practice, where he oversees projects in solar, wind, biomass and hydrogen, as well as energy storage , oil and gas and electric vehicles. Arthur has led nearly 50 energy market studies in Latin America since 2017 and has project experience in over 20 jurisdictions in the Americas. He has also written and published over 20 articles related to the energy sector.