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Tom Kirkman

Oil Traders Flock to Burgeoning Petrostate Guyana for Taste of Oil Riches

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Guyana in South America might be getting a bit of spotlight in the global oil & gas biz.  It's not often that an opportunity is presented for global traders to start up a country's oil trading. 

But it has to be done in person, and not via phone or internet.

 

Traders Flock to Burgeoning Petrostate for Taste of Oil Riches

  • Crude traders know little about Guyana ahead of market debut
  • Guyana wants a buyer that will teach it how to market its oil

Oil traders are packing their bags for a trip to the world’s newest petrostate -- a place they know remarkably little about.

At least half a dozen traders from Houston, Geneva and London are set to alight in tropical Guyana this weekend to bid on some of the first oil cargoes produced by the tiny South American nation. Ahead of the journey, the traders wondered aloud if they’re heading to an island (they’re not) and what language is spoken there (English).

Their lack of familiarity with the former European colony is a testament to Guyana’s unlikely emergence as an oil state. Long dependent on sugar plantations and bauxite mining, the country was the site of a major crude discovery by Exxon Mobil Corp. in 2015. Now it’s poised to produce more oil than neighboring Venezuela, a founding OPEC member.

Guyana has no experience in trading oil -- and it’s looking to learn the basics from its very first buyer. The government last week sent a letter to refiners around the globe inviting them to bid for 3 million barrels of Liza Blend crude, the light-sweet oil it will start exporting next year. The catch is that the buyer must take the unusual role of handling “all operating and back office responsibilities” related to exporting the crude, according to a document seen by Bloomberg.

On top of that, the bids must be offered “face to face” -- in the country’s capital of Georgetown -- starting Monday. Such a voyage is rare for traders, who do most of their business on instant-message platforms and by phone.

The oil world is happy to play along. The three cargoes being offered are an appetizer for a bigger prize. After this sale, part of an “incubation and launching” phase, Guyana plans to sell its crude via long-term contracts. The government will load its first cargo in February, but the first oil will be exported in January by Exxon Mobil, which operates the Liza oil field, according to people with knowledge of the situation. Exxon declined to comment on the shipment of the first oil to reach markets.  ...

 

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(edited)

It looks like this is the new go to oil country for those who are not welcome in Venezuela or who may have left Venezuela.  Since there are actually three Guyanas next to each other, Guyana is the former British Guyana.  What about French Guiana and Dutch Suriname too?  Even though, ExxonMobil has it as light sweet, it is actually bordering within medium sour (32.1 API and 0.51% sulfur). These days, I always lookup what the composition is since many are very generalized and not very accurately described. See: https://corporate.exxonmobil.com/Crude-oils/Crude-trading/Liza

Edited by canadas canadas
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Update:

Guyana Dep’t of Energy defends plan for sale of first three lifts of oil

Under growing criticism over a previously unannounced sale of Guyana’s first three lifts of oil, the government’s Department of Energy (DoE) today defended its plan but did not explain how it decided which companies should be selected to bid in a process set for tomorrow.

 

The DoE also noted that the second phase of oil sales will involve a public request for proposals.

A statement from the DoE follows:

STATEMENT ON THE PROCESS EMPLOYED FOR THE DIRECT SALE OF THE FIRST 3 LIFTS OF GUYANA’S PORTION OF FIRST CRUDE

 

Georgetown, Guyana – (December 15, 2019): The Department of Energy (DE) wishes to provide clarity and to debunk any uninformed comments and conspiracy theories circulating about the upcoming short-term arrangements for the direct sale of the first three lifts of Guyana’s portion of first oil from the Liza 1 programme.            

Two phases of this process are envisaged. The short-term first phase beginning this week will focus on setting national benchmarks for selling Guyana’s portion of its crude in the future.  Selected companies are invited to bid to buy Guyana’s product in the very short term. These companies are required to make offers from which Guyana’s team will choose the most acceptable proposals. The process currently underway is a direct sale to the companies and not the procurement of any marketing services.  The second phase involving a public request for proposals (RFP), for marketing services for Guyana’s crude is in final stages of preparation currently.  

This strategy was employed upon serious consideration of advice given by an international team external to the DE.  The advisory team consists of the following persons, a Crude Marketing Specialist, a Commercial Specialist and an external Legal Adviser, among others.  The logic is that given Guyana’s inexperience and the impending early date of the first lifts, an introduction phase of the grade was more advantageous to Guyana at this time.  Here are some of the key considerations around this decision:

 

1)    The full extent of the quality of crude is not yet known. It usually takes several lifts to determine crude only quality and the cost of refining it.  Guyana is embarking on its very first new crude introduction into the market of the Liza grade. The quality of the crude and its yield have not yet been tested within a refinery system. This interim arrangement is put in place just for this period.

2)   While the testing of the first crude lifted is taking place, the true economics or refined cost per barrel of the particular grade (in our case LIZA) is still being calculated. For a limited time only  the DE has been advised, by the Crude Marketing Specialist, that in order to take Guyana through this limited short term phase, a few high quality IOCs with a global refining footprint and integrated oil value chains would be best given an opportunity to support the DE during this incubation and launching phase.

3)    Guyana’s main incentive in taking this approach is to establish a norm in terms of quality standard and quantity availability so as to prevent any possible down-pricing. What the DE is seeking to accomplish with the short-term approach is to allow for stabilization and standardization to prevent our Liza Crude from being priced downwards due to uncertainty of the quality.

Upon careful consideration of all advice and exigencies of this moment, the DE initiated a conversation with a selected group of companies for a potential placement of ONLY the first 3 cargoes of Guyana’s entitlement. This (then)  allows Guyana to sell its crude directly to the selected Operators. While this may be considered by some to be a novel approach, it is a strategic one which brings the best value to the country and one which has been used in other places.  It should also be noted that the DE employed its usual consultative apparatus with the Guyana Public Procurement Commission prior to taking action.

 

The second phase of marketing Guyana’s portion of its crude is set to begin in January 2020. The public may recall, the Department of Energy had previously announced that in late 2019/early 2020 a full RFP would be issued, inviting companies to bid for the marketing of Guyana’s portion of oil on a longer-term basis.   

...

 

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