Introduction
Last week’s column displayed, in brief, the crucial macroeconomic foundations to my assertion that, recently, Guyana has become the newest Petrostate in the Americas. The data reveal a historically unprecedented explosive growth of crude oil activities in Guyana’s economy-wide aggregates, such as income growth, export earnings, import spending, fiscal revenues, and so on. As promised last week, today’s column will display the microeconomic – supply demand, markets prices and decision making foundations on which this assertion rests.
Microeconomic Indicators
DROP 2021-2023
Combined, the Guyana National Budgets 2023 and 2024 report in some detail the official data on the performance of the microeconomic behaviour of its rapidly emerging oil and gas sector. Basically, as reported, crude oil output had expanded from 43 million barrels in 2021 to 101 million barrels in 2022; that is an increase of 125 percent, when compared to just 43 million barrels in 2021.
The average daily rate of production, DROP, for 2022 was 128,000 barrels per day (bpd), compared with 117,000 bpd in 2021. During this period the average DROP fluctuated around 169,000 bpd, and peaked at around 233,000 bpd in December.
By 2024 the official data show that the oil and gas sector had further expanded by 45.9 percent last year with production reaching 142.9 million barrels of oil compared with the 101.4 million in 2022. It was reported in the 2024 Budget that this resulted from improved performance of the Liza Destiny and Unity FPSOs, as well as the startup of production from the Prosperity FPSO in November of last year. Indeed in 2023, the Liza Destiny FPSO produced crude oil at a rate of approximately 142,000 barrels per day (bpd), and the Liza Unity FPSO produced at a rate of 235,000 bpd
Natural Resource Fund Data
To complement the above the Budget 2024 reported that in the Natural Resource Fund, NRF, during 2023 there were 142 lifts of crude oil from Guyana’s three producing FPSOs. [A lift is about one million barrels of oil which it is assumed is loaded in about eight to nine days from the FPSOs]
Seventeen of these lifts were earmarked for the Government, six were from the Liza Destiny FPSO and 11 from the Liza Unity FPSO. The profit oil receipts in 2023 correspond to two lifts that occurred in the last quarter of 2022, and 15 Government lifts that occurred in 2023. Two receipts related to 2023 are anticipated to be made this month, with respect to lifts that occurred in December 2023, the Fund received US$1,398.9 million in profit oil, US$576.6 million from Liza Destiny and US$822.3 million from Liza Unity. With respect to royalty payments, US$218.1 million was received from the Stabroek Block operator. Further, in keeping with stipulations in the NRF Act 2021 and with the amount approved by the House to be withdrawn in 2023, US$1,002 million was withdrawn to finance national development priorities. In 2023, US$1,617 million in petroleum revenue was deposited into the Budget 2024, and at the end of the year the overall balance, inclusive of interest income, stood at US$1,973.5 million
Budget 2022 Strategic Policy
The Budget 2023 had reported that there had been three major lines of public policy, which were pursued in 2022; namely,
1] Strengthening the oil and gas sector’s legal and regulatory framework
2] Establishing and strengthening the pertinent institutions
3] Promoting accelerated exploration and production of petroleum
Budget 2024 also reports on seven policies
1] the legal regulatory and institutional framework
2] petroleum exploration
3] the production of oil
4] harnessing of gas reserves
5] promoting value added
6] promoting local content
7] promoting sectoral transparency
The first will be addressed today, items 2 to 6 next week and item 7 in the wrap up column following.
Under the rubric of A Diversified, Resilient and Competitive Productive Sector the Budget 2024 calls for building a world class oil and gas sector. The first aim is to: strengthen the sector’s legal and regulatory framework, establish and strengthen institutional structures required by that framework; continue to promote accelerated exploration and production of the resources in the national interest; and maximize the positive spillovers of the sector into the non-oil economy..
The Budget notes that, in the area of management and monitoring oil and gas resources, there have been major advancements in the sector’s legal, regulatory, and institutional frameworks and structures. In my Budget 2023 column, I reported on the operationalization of the NRF Act 2021 and the Local Content Act 2021, both of which have shaped the legal landscape for the oil and gas sector in our country. In 2023, a new Petroleum Activities Act 2023 introduced a regulatory foundation for licensing pipeline operations and carbon dioxide storage, comprehensive provisions on decommissioning, stronger and more up to date penalties for non-compliance, statutory provisions on a suite of fees, as well as clearer delineation of the role of the minister in the administration and authority for petroleum activities.
Work on revising the Production Sharing Agreement (PSA) resulted in the development of model PSAs for deepwater and shallow water blocks in 2023. The model PSA now contains clearer, more expansive provisions on data and its confidentiality, more defined timelines on the steps after discovery, provision for a retention fee where a licensee/contractor wants to hold on to certain resources, and strong penalties for failure to comply with work programmes. On the institutional side, the main coordinating and oversight agencies within Government have implemented systems that allow for both physical and remote monitoring of the offshore activities in real time. Additionally, in 2024, key studies will be undertaken on the offshore blocks to better assess the potential petroleum resources available for development and production.
Conclusion
As noted above, next week I’ll continue this National Budget-based portrayal of the macro- and micro-economic foundations of Guyana as Petrostate.
