When you consider Guyana’s explosive rise as an offshore oil producer, it is natural to think of this as a story of export success. However, with recent developments globally, the nation’s governmental leaders are beginning to look internally and question whether just extracting crude will allow them to maintain a position to insulate themselves from the increasing amount of uncertainty they see developing in their energy landscape.
Domestic refining returns due to global uncertainty regarding energy supply
This internal assessment of the nation’s future has quietly returned the subject of domestic refining to the forefront.
In his speech to the Georgetown Chamber of Commerce and Industry in March, President Dr. Mohamed Irfaan Ali stated that the renewed interest in a refinery was caused by rising political instability and global supply chain risk. With instability in major energy-producing areas, specifically along critical transportation routes (i.e., Strait of Hormuz), it is again evident how susceptible countries dependent upon importing fuels are, even when they are capable of producing oil.
Although Guyana has experienced significant success with its offshore oil production, the country still relies very heavily upon imported fuels – primarily for generating electricity. As a result, Guyana remains vulnerable to price increases, disruption in shipping, and/or supply delivery issues, which could rapidly pass through to both consumers and business entities.
Beyond fuel storage: Evaluating possible options for additional downstream capabilities
Guyana’s previous energy strategy focused on increasing its fuel storage capacity in order to provide some protection against short-term fuel supply disruptions. Although this provided some increased ability for Guyana to manage short-term disruptions, President Ali noted that recent global events demonstrate that this is insufficient for providing adequate control over fuel availability and/or pricing within a more unstable energy environment.
Therefore, the Government is now ready to “go back” to the conversation surrounding development of a domestic refinery, not as a large-scale industrial venture, but as a national security concern.
A local refinery would theoretically allow Guyana to increase its leverage with respect to fuel supplies and reduce the potential exposure to external shock waves that occur well beyond the border of Guyana.
Reframing conversations about refining as a component of a broader National Energy Strategy
The renewed interest in reframing the discussion regarding refineries is not being pursued in isolation. President Ali referenced this issue in conjunction with Guyana’s broader efforts to improve its overall energy infrastructure, including the gas-to-energy project intended to decrease electricity costs and reduce the long-term reliance upon imported fuels.
Together, these initiatives appear to represent a slow evolution of policies towards creating a more integrated domestic energy system-one that produces a larger portion of the total value of energy produced domestically versus relying entirely upon exporting raw materials and importing refined products.
Strategic needs vs. economic and practical realities
While there appears to be an open-ended conversation regarding refinery development, there are currently no announcements regarding specific project plans, timelines, or investments associated with the development of a refinery. Past proposals for refineries raised numerous concerns related to economics/financial viability, market size and demand, environmental considerations (e.g., emissions), and funding. These same concerns continue to exist today, although the current global climate has altered the strategic calculus.
President Ali did acknowledge the complexities associated with this type of decision and emphasized the importance of continued evaluation and cooperation with the private sector. He also indicated that the discussion regarding a refinery represents one aspect of a broader effort to reduce Guyana’s vulnerability to instability in the global energy environment while maintaining the nation’s high rate of economic growth. As the global energy marketplace continues to experience turbulence, Guyana’s reassessment reflects another common dilemma facing many emerging oil/natural gas producers-whether they should emphasize their success via exportation or create long-term domestic stability in an increasingly unpredictable world.
