Following the recently concluded energy conference, Kaieteur News highlighted several stories derived from Trinidad & Tobago’s (T&T) Energy Minister presentation. These stories inspired certain discussions among Guyanese in various quarters, some of which this author was privy to, whereby (i) there is a view that the T&T Energy Minister’s proposals make sense for Guyana to pursue; and (ii) the T&T Minister’s presentation was misrepresented by the local media entity.
Kaieteur News edition of February 21, 2024, carried an article with the caption: “T&T Oil Minister willing to help renegotiate ExxonMobil contract to benefit all Guyanese…”. The caption of the article is mischievous as it appears the publication misrepresented the T&T Minister’s presentation. The referenced article quoted the Trinidad & Tobago (T&T) Minister as follows:
“We in Trinidad and Tobago have spent the last seven years, after dealing with decades of contracts, renegotiating almost all of our contracts in the gas industry… It can be done, so our ability to sit down right across the aisle and to share with those who are now entering into the negotiations of their PSCs (Production Sharing Contracts), their E&P (Exploration and Production) Licenses etcetera should not be underestimated because we have done the same thing in our gas supply contracts for the upstream.” The Minister went on to state that the oil companies continue to invest in T&T despite the contracts being renegotiated to increase the value accrued to the country. The T&T Minister did not expressly state that he is willing to renegotiate Guyana’s Petroleum Agreement between ExxonMobil Guyana and their Co-Venture partners and the Government of Guyana (GoG). If he did, then that would have been out of order, but does not appear to be the case.
Suffice it to state, as acknowledged by the T&T Minister, they had embarked on renegotiating their oil and gas contracts over the last seven years. This came after more than one hundred (100) years of being an oil and gas producer in the region. And what he did not mention is that the timing of the renegotiations were close to the expiry of the contracts.
In the case of Guyana, it has been just about eight (8) years since crude oil was discovered offshore in commercial quantities, and less than four years since commercial production began. In this record short period of time, the GoG has already overhauled the legislative, regulatory, and fiscal framework governing the oil and gas industry. These include the enactment of the Local Content Legislation, a modern Petroleum Activities Legislation, and a completely new model Production Sharing Agreements (PSAs) for deepwater and shallow exploration and production. The new PSA’s introduced significantly higher fiscal terms in contrast to the 2016 Agreement; such as, the introduction of 10% corporate tax, royalty up from 2% to 10%, the cost recovery ceiling down from 75% to 65% thereby increasing the upfront GoG take in profit oil, and the 50% profit share remains. Moreover, as evidenced in the recently concluded auction of new oil blocks, despite the new PSA model with improved fiscal terms more favorable to Guyana, the auction was competitive, and it did not deter investors participation.
Interestingly, the GoG has effectively renegotiated nine (9) other contracts that are actively in their exploration phases. This means that following the discovery of commercial crude in the future, if any, the new PSAs shall apply to the future production licenses. Furthermore, the 2016 exploration license expires in 2027 provided that there is no force majeure event in the future, at which point the GoG is likely to repossess at least 90-95% of the Stabroek Block, following which the new PSA shall apply to all exploration and production licenses thereafter.
With respect to the T&T Energy Minister also argued that Guyana should consider sending its gas resources to T&T for processing instead of building out the downstream industry in Guyana. The Minister contends that “the return can be obtained immediately, no wait, no moratorium, no need for incentive and infrastructure” etc. From the sound of this, many Guyanese s believe this might be the best option for Guyana and questioned why GoG is reluctant to consider T&T’s proposal.
Well, the answer is simple. As is expected of any government, they ought to always put their country’s and by extension their peoples best interests first over any other. This is precisely the genesis of the T&T Energy Minister’s proposal. The question is; however, would T&T’s proposal serve the best interest of Guyana and the Guyanese people. The answer is no. It is not only about the return, and it should not only be about the return. Rather, the resource has to be utilized and monetized in a way that generate the maximum benefit for Guyana and its people. The only way this can be achieved is by developing the downstream industry, whereby opportunities can be created for the Guyanese private sector followed by the creation of employment for the Guyanese people, together with the accompanying economic benefits that would accrue to the country for all the people to enjoy.
Furthermore, it is not as simple as the T&T Minister puts it over; that Guyana just need to send the gas resource to T&T. The gas resource would not get there by waving a “magic wand”. The pipeline infrastructure will still have to be developed. So, which country or who would incur the cost for a gas pipeline from the Stabroek Block to T&T? Then, the cost has to be considered. Is the distance from the Stabroek Block to T&T shorter or longer versus the distance from the Stabroek Block to Wales? These are just the cost considerations.
One can also argue that the natural gas can be shipped to T&T in a floating LNG. That, too, has a cost for the infrastructure. Hence, would this be the best option for Guyana? Again, no. The feasibility studies have already shown that a floating LNG has a lower capital cost, but a higher operating cost, with higher operational risks. Conversely, the gas pipeline has a higher capital cost, but a lower operating cost, and lower operational risks. More importantly, the natural gas pipeline allows the GoG to be in control of the resource. On the other hand, this is a major disadvantage of a floating facility such that it would be impractical for the GoG to exercise its control over the resource. In fact, the floating facility would be far riskier for the country from a monitoring and accountability standpoint.
In summary, the T&T Energy Minister simply put forward his case that would revive T&T’s natural gas industry, at the expense of Guyana not developing its own industry. In so far as the renegotiation of the oil contracts are concerned, unlike T&T that only renegotiated their oil and gas contracts after more than century and close to the expiration, Guyana has effectively renegotiated its PSAs, and transformed the entire legislative and regulatory framework of the industry in less than four years after becoming an oil producing country.