This is the fifth in an oil series, which started in August 2017, that aims to focus on the oil industry. The intention is to try and explain the entire value stream, oil strategy, and recommended action for the Guyana oil sector.
I am of the belief that if the ordinary man in the street understands what is happening, then he will hold the feet of whoever wins the 2020 elections to the fire. The bottom line remains that the post-2020 Government must be held accountable by ensuring that the oil revenues are managed responsibly and with the best interests of all the people in mind.
Right now, from what I am observing under this Granger-led PNC regime, they are not very transparent and accountable in the oil-related negotiations. So, my plan is to bring oil-related information to the man in the street to stimulate debate and subsequent grassroots activism on the issue. Today, I move the conversation to a discussion on midstream activities in the oil and gas sector.
What is Midstream?
Midstream is the function of the oil and gas industry that provides the vital link between the producing areas and the population centres where industrial, refining and residential customers are located. Field gathering, processing plants, and transmission pipelines are the major assets in the mainstream industry. Also in the midstream industry are transportation assets.
Transportation assets can include the marine vessels that will be used to move the crude from the well to the refinery. Throughout this process, the chain will have storage assets. At the well site, Exxon has already commissioned the contract to develop their floating production, storage and offloading (FPSO) vessel designed to facilitate a production of up to 120,000 barrels of oil per day. Most of this oil could possibly be transported to the Baton Rouge Refinery in Louisiana owned by Exxon. That facility has a storage tank farm that can manage a production of 502,000 barrels per day (in one day that facility can handle 1/10 of Guyana’s annual fuel consumption).
The commercial success of the oil and gas sector is heavily dependent on the midstream segment of the business. Based on a study on Mainstream Infrastructure called “Capitalising on our Energy Abundance” – NAFTA countries alone are planning to invest some US$640 billion between 2018 and 2035 in transport assets, and refining infrastructure. Those investments are expected to yield some 430,000 jobs in Canada, the USA, and Mexico.
So these talks with Exxon to bring natural gas to the Guyanese shore for electricity should not be approached by the Granger Administration as a want, but as a need. If this investment is made in the natural gas facilities on-shore, then jobs will be created, possibly in the hundreds. Guyana can leverage such investments, which can include transmission pipelines, pumping facilities, processing facilities, storage facilities, compression facilities, and so on. It takes real investments and real humans to manage all of these things and that will redound to the benefit of Guyana.
So the opening sentence from the “Technical Working Group” who are tasked with negotiating on behalf of the Government of Guyana should be, “we have a business plan for this industry – we want a reliable and low-cost electricity system for the nation and we are ready to bring our assets to the process, tell us what we need to do to get this done by 2022? Clearly, communication with clear deadlines and with a clear vision is what Exxon needs to hear to take the Guyanese team seriously.
Midstream Business Characteristics
The four key characteristics of the midstream segment are:
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It is generally low risk;
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It is highly regulated, especially the pipeline components;
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The size of the investment is dependent on the health of the nearby upstream assets; and
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The price of oil and gas at the pump.
I trust the readers have gotten a grasp of the extent of this opening discussion on the midstream sector and the importance of why we must build those pipelines to feed GPL sooner rather than later to end blackouts, but, more importantly, to create the new jobs in a new sector that can absorb the growing army of the unemployed in Guyana.
Next week, I shall move to explaining these four key business characteristics of the midstream oil and gas sector.
