Two weeks ago, the American oil and gas giant, Exxon Mobil Corp.. (NYSE: XOM) announced had reached 500 million barrels of oil produced from the Stabroek offshore block in Guyana, just five years after production began there. According to Exxon, the first three projects – Liza Phase 1, Liza Phase 2 and Payara – are already producing more than 650,000 barrels/day. The consortium led by Exxon, which includes Hess Corp. (NYSE: HES) and China Cnooc (OTCPK: CEOHF) has set a goal of achieving production of at least 1.3 million barrels/day of oil by the end of 2027, a feat it hopes to achieve when six Approved offshore projects will be commissioned.
And now one of the world's largest oil consumers is interested in the light, sweet crude produced by this small South American country. Indian Prime Minister Narendra Modi said on Thursday during a visit to Guyana that its government views Guyana as the key to India's energy security. Modi told a special sitting of Parliament that he saw Guyana as an important source of energy and would encourage large Indian companies to invest in the country.
Guyana did not immediately grant Modi's wish, with Indian Foreign Minister Jaideep Mazumdar saying talks would continue and such a deal would ensure greater predictability. Guyana's Minister of Natural Resources, Vickram Bharrat, told reporters that Guyana was ready to supply India with a large quantity of crude, if Exxon Mobil, the main operator of Guyana's offshore oil production, agreed to such an arrangement .
We know that Exxon needs to make some changes to its lifting schedule and logistics because its preference is for very large vessels that can carry two million barrels, primarily due to distance and cost. » said Barratt.
According to Bharrat, Guyana prefers that Indian companies bid for the oil blocks and that negotiations can continue once the bid is submitted.
Improving energy security
India having recently become the the biggest buyer of discounted Russian oil ahead of China, it seems counterintuitive that it would be so eager to buy crude from a country nearly three times farther away than its much larger neighbor. Russian crude exports to India reached a record 2.07 million barrels per day (bpd) in July, compared to 1.76 million bpd to China. However, energy security has become a crucial issue for India due to its growing energy demand and limited domestic resources.
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We had previously reported that India's energy security was seriously compromised by the ongoing conflict in the Middle East. While there has been much focus recently on India's increasing imports of Russian oil, the country actually buys the lion's share of its oil from the Middle East. In August, the Middle East accounted for 44.6% of India's crude imports, up from 40.3% in July. Iraq, Saudi Arabia, the United Arab Emirates and Kuwait are the main suppliers of Middle East oil to India. On the other hand, the share of Russian crude fell to 36% after five consecutive months of increase. Meanwhile, India imports almost half of its liquefied natural gas (LNG) from Qatar. Already in February, the Indians Petronet LNG (PLL) and QatarEnergy ink a long-term LNG Sales and Purchase Agreement (SPA) for the supply of approximately 7.5 million metric tonnes per annum (MMTPA) of LNG to India over the next 20 years. The deal involves LNG imports worth $78 billion by PLL over the life of the contract.
India's geostrategic position and access to two of the world's most critical maritime chokepoints – the Straits of Malacca and Hormuz – make it a critical player in the global oil trade. Hormuz is the world's most important oil transit chokepoint. Chokepoints are narrow channels along widely used global shipping routes that are critical to global energy security. Even temporary disruptions that occur along these critical routes can result in a substantial increase in transportation costs, thereby increasing global energy prices. Located between Oman and Iran, Hormuz connects the Persian Gulf to the Gulf of Oman and the Arabian Sea. The Strait of Hormuz is the only maritime link with the rest of the world for Iraq, Kuwait, Bahrain and Qatar, whose economies are heavily dependent on imports of basic necessities. More than 85% of India's oil is imported through the Strait of Hormuz, while major trade routes pass through the Strait of Malacca. Together, these straits host more than 60% of the world's oil flow and a third of global trade, highlighting their strategic importance not only to India, but also to the world's energy security and economic continuity.
Oil prices fell more than $2 a barrel on Monday after reports emerged that Israel and Lebanon had agreed to the terms of a deal aimed at ending the conflict between Israel and Hezbollah. Reuters reported On Monday, a senior Israeli official said the country's cabinet would meet on Tuesday to approve a ceasefire deal with Hezbollah, while a Lebanese official said Beirut had been informed by Washington that a deal could be announced “within hours”.
“It appears that news of a ceasefire between Israel and Lebanon is behind the price drop, although no supplies have been disrupted due to the conflict between the two countries and the premium risk on oil was already low before the latest price drop.” said Giovanni Staunovo of UBS.
It is possible that these developments mark the beginning of a de-escalation of tensions in the region. However, US officials have warned that negotiations are not over after hopes of a ceasefire between Israel and Hezbollah were dashed. Furthermore, the fact that Israel has The dramatic escalation of its airstrikes campaign in Beirut and other parts of Lebanon just hours after news of a potential deal was released does not inspire much confidence.
By Alex Kimani for Oilprice.com
