– warns that selling to open market now could hamper future sales
ONLY the first three cargo lifts of Guyana’s crude following ‘first oil’ will be up for direct sale to international traders expected in the country this week, Director of the Department of Energy, Dr. Mark Bynoe said on Sunday, while noting that the short-term arrangement is the best option for Guyana as it heads into the new industry.
Through his department, Dr. Bynoe clarified misguided reports, by confirming that the country’s decisions are being guided by a full team of international experts, internal experts and the Guyana Public Procurement Commission (PPC).
The Guyana Chronicle reported on Sunday that at least half a dozen traders from Houston, Geneva and London were expected to land in Guyana over the weekend to bid on some of the first-oil cargoes to be produced here.
The report first came from Bloomberg which acknowledged that Guyana is poised to produce more oil than neighbouring Venezuela but the country has no experience in trading oil and is looking to learn the basics from its very first buyer.
On Sunday the Energy Department explained that the process expected this week is not for marketing services to sell Guyana’s crude in the open market as this is not scheduled until January 2020.
Instead, the selected operators will take Guyana’s initial three cargo lifts for which the quality is still being determined. It was explained that selling the crude to the open market uncertain about its quality could cause the Liza Crude to be priced downwards off the bat.
“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,” Dr. Bynoe explained.
He added: “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 stabilisation and standardisation to prevent our Liza Crude from being priced downwards due to uncertainty of the quality.”
At the negotiations, Guyana will be represented by a Crude Marketing Specialist, a Commercial Specialist and an external Legal Adviser, among others.
After careful consideration of all aspects, the Department of Energy initiated a conversation with a selected group of companies for a potential placement of first three cargoes of Guyana’s entitlement.
They are International Oil Companies (IOCs) with a global refining footprint and integrated oil value chains best suitable to support the Energy Department during this incubation and launching phase.
Selected companies are invited to bid to buy Guyana’s product in the short term and are required to make offers from which Guyana’s team will choose the most acceptable proposals.
The Energy Department stated 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 and will focus on setting national benchmarks for selling Guyana’s portion of its crude in the future.
This marks the first phase of crude sale and the second will involve a public Request for Proposals (RFP) for marketing services for Guyana’s crude.
The Department indicated that this is in the final stages of preparation currently and in January 2020 a full RFP will be issued inviting companies to bid for the marketing of Guyana’s portion of oil on a longer-term basis. It could take about three months to finalisation.
Back in July, Dr. Bynoe stated that the department is aware of the risk associated with not getting this right.
In all its efforts, the department has stated that industry-standard documents, based on the Association of International Petroleum Negotiators Crude Lifting Agreement (CLA), is being applied.
“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,” Dr. Bynoe said.
“The Department of Energy wishes to assure the Guyanese public that we continue to leave ‘no stone unturned’ to secure the best value for our national resources. We look forward to introducing our own Liza grade oil into the market in the new year when the full RFP has been executed,” he added.
Through his department, the Energy Director, called on those tasked with interpreting these unfolding to the public to revise their reporting and desist from advancing any other interpretations which seek to tarnish the judgment of the President and, by extension, the Department of Energy.
The Liza field is scheduled to start production this month and will reach 120,000 barrels a day next year. By 2025, it is expected to ramp up to 750,000 barrels daily. At that rate, Guyana is set to produce as much oil as Venezuela in five years