Dear Editor,
Reference is made to a news story “India’s top refiner buys its first Guyanese oil – source”. The article goes on to suggest that Guyana is to looking enter into a long term contract to sell its oil directly to India. Firstly it is disappointing to learn of this sale, worth around US$70M, via a foreign news agency. The article raises numerous questions about this transaction and any future commitments the government may enter into. The first issue is to do with distance. Shipping crude from Liza Destiny to Panama (Chiriqui Grande) or Houston involves a sailing time of less than a week. Sailing from Guyana offshore to the Parandip refinery on the East Coast of India is probably going to take up to a month entailing high shipping costs that are currently averaging $16,000 per day for a SuezMax (1M barrel) tanker but have in the past reached $86K per day. The question then is what is the nature of the most recent sale? Have the two countries agreed as to who will pay the shipping costs and how might that affect the price per barrel? Will it be based on the spot price of Brent at the time of lifting which Liza crude is roughly equivalent to?
Going forward, what is the nature of the contract the government might have with the Indian refiner? Is it sensitive to shipping costs that are notoriously volatile? Will the selling price be fixed for a period or the spot price? These are crucial issues especially in a market that is coming out of the Covid-19 pandemic and seeing Brent rise to over $75 per barrel. One would at least expect that the overarching principle is that Guyana should receive the highest price for its shipments as possible as this is our national resource. Finally, why has the government chosen to engage the Indian government, in particular, for contract talks? Why not another country? Are there non-economic reasons? One could understand the country’s desire to build stronger relations with India. It might be in the interests of Guyana geopolitically. There is a powerful symbolism in shipping crude across the oceans to India and it sends a positive message of postcolonial/South-South solidarity. However, will that entail a cost to the country? Transparency is vital here and in this regard any government to government arrangement might be shrouded in mutual secrecy. So it would be useful for citizens to understand the reasons behind this initiative and to be enlightened as to the details of any proposed contracts.
Sincerely,
Lynn Nicholas
