Guyana – what to do with the gas?

The South American country of Guyana started producing oil in 2020 and production is expected to be 750 kbopd by 2025. With a population of just 800,000, this could mean a hydrocarbons income per person similar to that in Norway, Qatar or Kuwait.

The oil is deepwater, produced to FPSOs, and comes with associated gas.

While the oil can be discharged to a tanker, there are several options for gas:  export via pipeline, floating liquid natural gas (LNG) facilities with tanker export, or re-injection in the reservoir.  

We heard that Exxon has plans for a gas to electricity project which would send gas to shore for power generation via a 120 km $1.3 bn pipeline.  This would provide a cleaner option for Guyana’s electricity generation, the majority of which uses fuel oil with a much greater carbon footprint than natural gas.  

However, the estimated 50m cubic feet per day for electricity generation is a very small portion of the over 1 bn cubic feet per day rate at which the project is ultimately predicted to produce on plateau.  

With no existing infrastructure for gas transport, the gas would have been flared in projects developed in the past, but today there are environmental concerns about flaring – from the CO2, methane from the 2 per cent unburned gas, and particulates, noise and heat.

The sole operator in Guyana, ExxonMobil, is currently reinjecting the majority of the gas back into the reservoir after using some for power generation. But there is still gas being flared while systems are in the ‘start-up’ phase. It also means that the proportion of gas in flows coming up through the production wells (technical term is gas oil ratio) will progressively rise.

A broader concern is quality of the hydrocarbon governance. Dr. Zainab Usman, a senior fellow, and director of the Africa Programme at the Carnegie Endowment for International Peace in Washington, D.C. is quoted as saying, “whether revenues remain hidden or aggravate socio-political problems will depend on Guyana’s mechanisms for checks and balances.”

Alison Redford, an advisor to governments (including Guyana) and former Premier of the Canadian Province of Alberta, speaking in the webinar, expressed confidence in the Guyanese government’s ability to manage the development.

She explained that a newly elected government is pushing for higher environmental performance, including an agreement for ‘carbon neutrality’, plans to take the gas to market, and introducing fines on the operator for flaring. Exxon has been fined US$4.5m so far for flaring.

Ms Redford emphasised the importance of making environmental plans right at the start of any project.

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David Bamford, a former lead of BP’s global exploration program, speaking at the webinar, said he was impressed by the patience ExxonMobil had shown in developing the fields, since it first started exploring in the 1990s. This was under Mobil, a company which merged with Exxon in 1998.

Other companies had already tried an approach Dr Bamford call ‘trend ology’, expecting to find the same thing in Guyana as they find on the equivalent area of the West African coastline, and also in Suriname and French Guinea, but it didn’t work.

And the successful wells drilled in Suriname tended to more gas than deepwater oil discoveries in Guyana, so they would be much harder to commercialise.

Exxon seems to have developed “a profound understanding of petroleum systems,” he said, making maps of the source, reservoir and seal. This included analysing the depositional system, source rock maturation, hydrocarbon expulsion, migration, and where in geological time it all happened. This was supported by high quality 3D seismic and attribute anlaysis.

“I would say this is terrific hard work, there are no short cuts, you can admire Exxon’s patience above all.”

Just 1000km away from the Guyana coastline is Barbados, whose prime minister, Mia Mottley, gave “maybe the best speech at the COP 26 climate change conference,” with Barbados under high risk from changes in climate and sea level, Dr Bamford said.

Dr Bamford was personally involved in BP’s work to develop oilfields in Angola and the Niger Delta, which were similar projects in that they were new deepwater developments. But they were developed in an era (1990s) when there was much less environmental concern, and decisions were made purely on whether they would make money.

Big deepwater oil projects can be extremely profitable. “If you have done enough appraisal to understand the reserve base well, and you have a good reservoir, then an FPSO based system gives you the opportunity for early development, early first oil.”

“When you start looking at the economics, you start understanding why companies like BP abandon places like the North Sea and say, ‘we want to spend our money in this sort of system,’” he said.

There are developments in West Africa at a similar stage, in Mauritania / Senegal, and in Namibia. For the ‘Tortue’ project in the border of Mauritania and Senegal, there are definite plans to liquefy gas and export to Europe. But in Namibia, so far there are only early-stage plans for oil production, he said.

One difference between Guyana and the African projects is that Guyana is considered a ‘middle income’ country by the World Bank, while many African countries are the poorest in the world, in particular with respect to energy poverty. This means there is more resistance in Africa to any environmental measures which may prevent a development project from proceeding, he said.


Understanding flaring

Oil and gas operators may need to flare for safety reasons. For example, if there are pressure increases in a system due to equipment malfunction or maintenance, the gas can be safely released by diverting it to a flare stack and burning it. This is usually with small volumes of gas and happening intermittently, explained J.L. (Les) Anthony, CEO, Teyshas Energy LLC, a technical consultancy based in Dallas.

In the past, the industry routinely flared gas, because it only wanted oil, and considered gas that was produced with it to be a waste. “When I was younger, you could drive through West Texas without headlights on because there were so many flares,” he said.

The World Bank Global Gas Flaring Reduction Partnership estimates that a typical flare is 98 per cent efficient in terms of how much fuel is combusted, and methane has 25x the global warming potential of gas. So, the 2 per cent of methane which escapes unburned creates half as much greenhouse gas impact as the CO2 from the 98 per cent of gas which is combusted, and in addition to it.

It means that each cubic metre of gas which is flared causes 2.8kg of CO2 equivalent emissions, he said.

Other environmental negatives of flaring are release of particulate matter (soot), heat and noise. These can impact fishing near the FPSO.

An organisation called Earth Observation Group, in the Colorado School of Mines, analyses flaring globally, with algorithms to differentiate light from flares on satellite imagery, and to determine the composition of gases.

The World Bank flaring group estimates that globally there was 145bn m3 of gas flared in 2020, which caused 400m tonnes CO2 equivalent of GHG impact.

Another US organisation, Skytruth, keeps data about flaring, and Mr Anthony was able to use it to map when Guyana flares started and finished.

Using Skytruth data, you can see the flare from the Liza Phase 1 FPSO “Destiny” was lit continuously from Jan 16, 2020, to June 5, 2020, and the flare on Liza Phase 2 FPSO has been lit intermittently for a number of months over 2022.

Skytruth ranked Guyana 40th in the world for countries which flare, with 0.28 billion cubic metres (BCM) flared in 2020. Although this is a long way behind the No 1 Russia (24 BCM), Iraq (17 BCM), Iran (13 BCM) and the US (12 BCM).

But Guyana will be starting up many more oilfields, which could put it at 14th worst in the world, according to Mr Anthony’s modelling.

Exxon’s development

Exxon drilled its first well offshore Guyana in 2015. More than 30 exploration wells have been drilled in the last 7 years, with 26 significant discoveries.

The first FPSO on Liza Phase 1, “Destiny” was started up in early 2020; the second, on Liza Phase 2, “Unity”, started in Feb 2022. There are 10-12 FPSOs forecast to be used in the final development, he said.

For the third and fourth FPSOs, Payara and Yellowtail, Exxon has produced a forecast of how much gas it expects to flare, with a maximum rate of 200m cubic feet a day, although it said it will aim to flare less.

Mr Anthony estimates that the production over the lifetime of the field could be 8.6bn barrels of oil and 8.6 TCF of gas. That gas volume is more than enough to justify investing in a full LNG ‘train’ (sequence of compressors), or even more than one.

Guyana is developing a master plan to use the gas for power generation for domestic use, and then develop LNG. But until this happens, gas will be injected back into the reservoir.

With reinjection of all associated gas not flared or used for fuel, total gas production will be 23 TCF by the end of the license period in 2049, Mr Anthony estimates. This means each gas molecule will circulate about 3 times.

This gas production means higher operating costs, higher capital investments, and makes the field less commercially effective, shortening its commercially viable lifetime.

Exxon is likely to use water as the main way to maintain reservoir pressure, with a maximum injection rate which “could be” 1.5m barrels of water per day, Mr Anthony said.

So, there will be increasing water produced with the oil. Exxon plans to treat the produced water and discharge it overboard. This could be 1m barrels of water a day at its peak.

Mr Anthony compared three different options for how the reservoir could be managed, which could have been considered before any development had started.

One would be to re-inject all gas not used for fuel or flared and sell none of it.

The second would be to sell gas for domestic power in Guyana starting in 2024, and then develop onshore LNG production, with 200m cubic feet per day in 2030, rising to 600 in 2040. These projections are in line with Guyana’s Oil and Gas Master Plan.

The third is that all gas is sold immediately and there is no re-injection (and dramatically reduced flaring). This option is strictly theoretical due to the field production start-up over two years ago and the timing required to fabricate and commission large gas sales projects.

Comparing the options, while the second and third would need investment in infrastructure, the first option needs more spending on compression equipment, gas injection wells, and higher operating costs of compression, gas handling, flaring equipment and fines.

Guyana government

Alison Redford, who works an advisor to governments (including Guyana), noted that many of the issues Les mentioned are the ones which the government is currently considering. But also, the discussions are progressing.

A new government was elected in Guyana in 2020, which was involved in negotiations for the Payara and Yellowtail developments (the third and fourth FPSOs). Both have different “profiles” for flaring and gas utilisation.

For the fourth FPSO (Yellowtail), Exxon has agreed with the government to do a gas utilisation study, including power generation onshore, and LNG for export.

“Guyana has ramped up in terms of understanding how they need to work with Exxon on developing production profiles,” she said. “This includes looking at economic viability of projects and some other longer-term considerations.”

What I’ve seen happening [is that] there’s a definite public acknowledgement that the licenses negotiated by the previous government for Liza [phases] 1 and 2 were too flexible in terms of the level of flaring that was be permitted.”

“The new government under Vice President Jagdeo and Minister Bharrat started to see some of these problems [and] amended the licenses so they are more tightly controlling flaring.”

“The government is working every day to improve the system. The government has zero tolerance for routine flaring and will only allow for flaring in emergency situations and during commissioning.”

“That’s why it’s important that the ‘commissioning’ [phase] is tightly defined, so flaring doesn’t continue indefinitely.”

Guyana’s Environmental Protection Agency has also put “tremendous investment and development” in their ability to monitor flaring. They can do it 24 hours a day. They have also developed a penalties system.”

“They are managing, very well, the environmental impacts that they need to address, whether through flaring or other operational issues.”

“They put in place a robust Environmental Protection Agency (EPA) system that is stronger every day with respect to how they are able to monitor and impose penalties on Exxon when they don’t perform.”

“My sense is, as a government, they are technically qualified and able to manage the issues and doing a very good job at understanding the long-term consequences.”

“It could make the most sense for Guyana to move gas to a commercial development level. That will likely be considered as part of wider economic development planning,” she added. “There’s a lot of development decisions that need to be made. From what I have seen, this is a government which is prepared to consider these options.”

The carbon approach

Ms Redford noted that Exxon and the government are working toward a ‘carbon neutrality’ agreement. “I think that’s a big step forward. 2-3 years ago, when the idea was introduced, Exxon wasn’t that interested in it.”

“Certainly, the world has changed. Exxon has some new active shareholders and directors, and that has changed their view on how they deal with climate issues,” she said.

“The Government of Guyana and operators, are all trying to work within this very complicated environment to get to a better place in terms of environmental impact.”

“I don’t think we have all the answers today, anywhere in the world. I don’t think that anyone globally has the perfect answer.”

It is very important to think about environmental aspects early on with a major development like this. “Even if you start very early on planning, you haven’t started soon enough – that is a lesson that all oil producing countries globally have learned and that is also the situation that Guyana faces. They are constantly striving to do better.” she said.

She added that the Barbados Prime Minister Mia Mottley, who had given a compelling speech at the COP UN climate conference, spent 4 full days attending the February 2022 Guyana Energy Conference and Expo 2022, which seems to demonstrate her commitment to Guyana’s energy development.

There could be efforts to develop regional solutions for energy supply and climate involving Barbados, Guyana and others, she said.

Mr Anthony noted that with Exxon’s development in Guyana, genuine carbon neutrality is not possible, if it implies no emissions of CO2 at all. “But we’re going to do a better job [on carbon] if we flare less gas.”

In the global picture, Guyana’s oil and gas production could be considered ‘advantaged’ due to their scale, this allows for capital and operating expenses to be carried by a larger number of barrels, Mr Anthony said.

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