At least half a dozen traders from Houston, Geneva and London are set to alight on tropical Guyana this weekend to bid on some of the first oil cargoes produced by the tiny South American nation, Bloomberg reported.
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 crude blend, 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, Bloomberg reported.
Bloomberg says 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 ExxonMobil, which operates the Liza oil field, according to people with knowledge of the situation.
News-Talk Radio Guyana 103.1 FM/Demerara Waves Online News was told by knowledgeable industry sources that ExxonMobil has decided to absorb that possible risk of the very first oil that would be pumped up containing contaminants. Industry sources say in the unlikely event that that happens, it can take a while for Guyana’s oil price to recover.
Guyana will be selling its oil mainly to Far East and a few southern United States buyers based on plus or minus Brent Crude price, taking into consideration the light sweet crude quality—low sulphur quality of oil—and transportation cost from Guyana to the refineries.
Every nine to 10 days, one million barrels of oil will be loaded from the Liza Destiny Floating, Production, Storage and Offloading (FPSO) vessel to oil tankers on a rotation basis, based on their percentage share in the ExxonMobil-majority owned and operated Esso Exploration and Production Guyana Limited (EEPGL). Overall, Guyana will get two percent royalty plus 12.5 percent profit oil, with the remainder being cost oil for the multibillion dollar investments in exploration and associated activities. The other shareholders are Hess, China National Oil Company and the Guyana government. Industry sources also say that ExxonMobil will be selling its oil to its own refineries on a competitive market basis.
The Liza field is scheduled to start production this month and will reach 120,000 barrels a day next year. By 2025, it’s expected to ramp up to 750,000 barrels daily. The country, a third of the size of Texas, is poised to produce as much oil as Venezuela in five years. Oil exploration takes place off the coast, in the blue waters of the Atlantic ocean, in ships turned into oil platforms.
Guyana’s output boom comes at a trying time for global oil markets. The U.S., Brazil and Norway are all growing production even as the Organization of the Petroleum Exporting Countries and its allies cut their own output in a bid to curb a global supply surplus. Guyana’s Liza blend has similar characteristics to grades produced by Nigeria and Angola and is also seen as an alternative to U.S. oil.