By Dr Terrence Blackman
The ExxonMobil-operated Payara-Pacora joint development off Guyana has been put on hold until the new administration of president Mohamed Irfaan Ali conducts a thorough review of the project. This action raises, once again, the issue of a sound regulatory framework for the oil and gas industry in Guyana.
A transparent, stable, and predictable regulatory process is critical to maintaining economic growth. It signals to investors, locally and internationally, that Guyana is and will continue to be a reliable business partner. Guyana must take a sensible and judicious approach to the use of regulators and regulations to support its long-term development.
ExxonMobil will invest US$23 billion in Guyana in 2020. For context, the Gross Domestic Product (GDP) in Guyana was worth US$4.28 billion in 2019. This investment’s scale and scope are evidence of ExxonMobil’s commitment to the development of Guyana’s energy resources. This commitment necessitates an expectation of regulatory stability, and the regulatory regime must balance the interests of the Guyanese people, ExxonMobil, and the environment.
The department of energy has, for more than seven months, been engaged in a review of the field development plan. The review, which commenced on December 27, 2019, is being carried out by Bayphase Oil and Gas Consultants. The Mohamed Irfaan Ali government has decided to review the work already undertaken by the Department of Energy. They argue that this re-review is to ensure that the interests of the Guyanese people are protected.
To the objective observer, this review and subsequent re-review do not describe an optimal state of regulatory affairs. It is clear that a small team cannot adequately re-review the field development plan for an undertaking such as Payara over a few months. From ExxonMobil’s perspective, one notes that the development planning of a deep-water oilfield directly influences production costs and benefits. This, coupled with the uncertainties of the crude oil price and the reservoir and the special production requirements, makes it always, technically difficult, to optimize development planning of deep-water oilfields. Therefore, it is prudent for Guyanese stakeholders to carefully consider the intersection of the Guyanese people’s interests and that of ExxonMobil.
It is also vital for ExxonMobil to be mindful that its actions regarding the delays caused by the regulatory agencies not be perceived as scare tactics, cynically, used by multinational companies doing business in undeveloped countries. The perception that ExxonMobil’s actions are solely motivated by its enrichment will easily find root in the resonant Guyanese narrative of foreigners holding the country hostage, doing as they please, and destroying the environment while taking all the wealth of the country.
To this end, ExxonMobil must continue to embrace regulatory and environmental standards in Guyana that go beyond international norms and practices and it must clearly distinguish between criticism of the Guyanese regulatory bureaucracy and the legitimate national aspirations of the Guyanese people. ExxonMobil’s interests can work in concert with Guyana’s in a properly regulated environment.
One crucial issue that has arisen in the environmental domain is that of flaring and its consequences. The Liza field is 120 miles offshore. It is 1.2 miles beneath the sea and well depths extend three miles below the sea surface. As is often the case in offshore wells, large quantities of natural gas are produced with the oil. Field development plans usually call for this gas to be reinjected into the reservoir. Unfortunately, as Robert Kleinberg reports, ExxonMobil has encountered problems in reinjecting the gas and it has resorted to burning it off, i.e., “flaring” it. Flaring wastes the gas, a valuable natural resource, and emits carbon dioxide into the atmosphere without a beneficial use.
However, local reports indicate flaring is being reduced as the technical problems get solved. Still, thus far nine billion cubic feet of gas have been flared. This is approximately a day’s consumption of natural gas in the nation of Germany. The government and people of Guyana must require ExxonMobil to live up to its environmental standards by ensuring that they are using the best available technology to ensure flare combustion is as minimal and as efficient as possible.
There is a powerful argument to be made that some of the natural gas must be brought to shore for Guyana’s domestic energy use. The effect would be extremely positive for Guyana and the global environment. ExxonMobil must support this aspiration. Electricity generation in Guyana is almost entirely dependent on diesel engines and heavy fuel oil. Diesel fuel is expensive and has a significant greenhouse gas impact. Natural gas is far superior, both in cost and in environmental effects and it aligns well with both the Low Carbon National Development Strategy and the Green Guyana Development Strategy of the major political parties.
When ExxonMobil sought new partners for the Stabroek Block, only two out of 22 companies were interested. Before 2015, international firms had drilled more than forty failed wells off Guyana’s coast over three decades with no commercially viable finds. It is trite but true: these resources lie 150 miles off the coast of the Atlantic and three miles beneath the sea surface, to access them requires expertise and treasure that we, Guyanese, do not possess independently. With prices touching 30-year lows, accelerating societal pressure for the use of renewals combined with the COVID-19 crisis, we are at a transformative moment for the energy industry and we ought not to take our good fortune for granted. We are indeed fortunate to be here and we must value our partners in this endeavor.
Our oil and gas partners, however, must also recognize that this resource windfall is a once in a lifetime opportunity to improve the lives of Guyanese people and to transform the country. It is, therefore, right and proper for Guyanese to be vigilant about the preservation of the Guyanese environment and the wise use of the Guyanese energy resources. Consequently, we must seek an optimal balance of the competing interests: i.e., the interests of the Guyanese people, ExxonMobil, other oil and gas operators, and, crucially, the interests of the environment.
