Chinese refiners grab up Guyana’s oil for next to nothing - report

Chinese refiners grab up Guyana’s oil for next to nothing – report

Apr 15, 2020 News

As a result of the novel coronavirus, all hopes of local authorities locking in approximately US$60 to US$40 a barrel for Guyana’s sweet, light crude have been dashed, leaving independent Chinese refiners with ample opportunity to grab up the new grade of oil for practically next to nothing.
In fact, Offshore Engineer Magazine, an international source of news and analysis, recently disclosed that Chinese refiners snapped up rare crude grades from the North Sea and Guyana at low prices. Both were sold at spot discounts of US$7.30 to $7.50 for July arrival.
Traders who spoke with the Offshore Engineer Magazine said, “These are absolute bargains and absolutely worth buy… It would be a pity not to pick up the cheap barrels.” It was also noted that independent refiners collectively account for a fifth of China’s crude imports and their purchases are restricted by quotas.
For China, Guyana’s crude, which is a low-sulphur grade, is considered a good substitute to popular ones such as Russia’s ESPO crude and Brazil’s Lula crude, which were offered at comparatively higher spot differentials. (See link for more details: https://www-oedigital-com.cdn.ampproject.org/c/s/www.oedigital.com/amp/news/477348-chinese-refiners-buy-rare-north-sea-guyana-crude-at-low-prices)
BREAKEVENS
Since the start of the year, S&P Global Inc. which provides financial information and analytics, said that oil prices plunged more than 50 percent. This was due to the coronavirus pandemic which greatly affected the demand for oil. The situation was also worsened when an oil price war ensued between Saudi Arabia and Russia, where the latter rejected a proposal for production cuts.
In retaliation, Saudi Arabia flooded the markets with its oil but at cheap prices, which further reduced the demand for crude sold by Russia to its key markets in Europe. By the time Russia buckled and agreed to Saudi’s proposal to cut production, the price of oil dropped below US$30 a barrel.
As a result of this, many oil companies and governments of producing countries have been plunged into a state of worry, as many projects that either started or were scheduled to start, had to be suspended, since they were only profitable at US$35 a barrel and upward.
Other international consultancy firms like IHS Markit, have said that projects which are supposed to recover as much as 16 billion barrels of oil reserves across Latin America, could be delayed or abandoned in the depressed oil price environment since the breakeven cost for the said projects are pegged at US$40 a barrel.
In Guyana’s case, Rystad Energy told S&P Global Inc that the Liza Phase One Project which came online in December 2019 has a breakeven cost of $37 a barrel. It should be noted that ExxonMobil’s partner on the Stabroek Block, Hess Corporation, had said in January last, that the breakeven for Liza One was US$35 a barrel. As of yesterday, the current price for oil is way below this.
Rystad Energy had told S&P Global Inc, as well, that it does not foresee Exxon turning off the taps in Guyana, provided that there are export tankers and buyers in the oversupplied market in the very short term.
In mid-February, Guyana’s Energy Department was able to sell one million barrels of oil to Shell’s subsidiary in Barbados at US$55 a barrel. With four more lifts to make this year, observers have said that Guyana will have to continue selling its share of the Stabroek Block oil for next to nothing, since it failed to lock in a high price earlier in the year.

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