News Americas, NEW YORK, NY, Tues. Dec. 19, 2023: Suriname, a member of the Caribbean Community, (CARICOM), has received upgraded ratings from Moody’s after successfully restructuring its debt.

Holders of Suriname’s two Eurobonds, which had been in default since the end of 2020, were offered new debt instruments worth US$660 million and an oil-linked security in exchange for their defaulted debt. This exchange applied to holders of Suriname’s notes due in 2023 and 2026. Suriname has also reached restructuring agreements with several official creditors, although agreements with some other commercial domestic and foreign creditors for smaller debt amounts are still being finalized.

As a result of these developments, S&P Global Ratings raised its long- and short-term foreign and local currency sovereign credit ratings on Suriname from ‘SD’ (selective default) to ‘CCC+/C’ on December 6, 2023. The outlook for the long-term ratings is stable.

The stable outlook reflects the government’s commitment to fiscal reform and macroeconomic stabilization, along with the completion of the debt restructuring. However, it also considers the risks associated with developing institutions and governance weaknesses, including debt management.

S&P Global Ratings has outlined possible scenarios for Suriname’s ratings. In a downside scenario, the ratings could be lowered if expected financing from multilateral lending institutions fails to materialize or if other policy or administrative developments increase the likelihood of another default. In an upside scenario, the ratings could be raised if the government continues to make progress in concluding restructuring agreements with creditors, meets the conditions of multilateral lending institutions, strengthens debt management, and implements proactive economic policies that reduce the likelihood of another commercial debt payment default.

The ‘CCC+’ long-term sovereign ratings for Suriname indicate its dependence on favorable economic conditions to meet its financial commitments. The ratings also take into account factors such as high inflation, a challenging socio-political environment, and vulnerabilities in the financial sector.

Suriname’s recent debt restructuring follows missed payments on commercial debt and subsequent restructuring announcements in 2020 and 2021. S&P Global Ratings upgraded Suriname’s long-term rating to ‘CCC+’ following the successful debt exchange, which addressed the government’s outstanding U.S. dollar bond debt. The restructuring extended the maturities of the bonds to 2033 and included an accrued interest rate of 7.95%, with a payable rate of 4.95% before 2026. Principal payments on the bonds are not due until January 2027. Additionally, an oil-linked security with a notional amount of US$314.7 million was introduced, payable only if Suriname receives oil royalties from offshore Block 58. Bondholders will receive a share of the yearly oil royalties from Block 58 after the government receives US$100 million in royalties.

This debt exchange is expected to be the final resolution for the 2023 and 2026 bonds, and it reduces the near-term litigation risk related to future debt service.

News Americas, HAMILTON, Bermuda, Tues. Dec. 19, 2023: In a move to bolster the growth of Bermuda’s insurance and reinsurance sectors, the Irbisio Green Energy Fund has been established with a focus on investing in clean technology infrastructure.

With a primary objective of deploying $100 million of investments within the next two years, the fund aims to finance sustainable projects that contribute to achieving carbon neutrality while offering stable returns to its investors.

Located at Innovation House on Reid Street in Hamilton Bermuda, the fund is currently staffed by one person but plans to expand its team by hiring a lawyer and a financial analyst in the coming year. Operating discreetly over the past year, Irbisio intends to make investments across Europe, the Americas, and the Middle East.

Furthermore, the fund is open to investing in local Bermudian projects, with a particular emphasis on harnessing Bermuda’s renewable energy potential, which could lead to reduced consumer prices. The fund spokesperson also highlighted the possibility of Bermudian companies becoming national leaders and expanding to other island nations.

Irbisio’s investment criteria are based on three core factors: impact (such as CO2 reduction), reliability (ensured revenues through long-term contracts), and rapid construction time. Potential investment areas include renewable energy communities, recycling initiatives, and solar and energy storage solutions for residential and commercial sectors.

The Bermuda Business Development Agency (BDA) played a pivotal role in the creation of Irbisio, facilitating interactions with government regulators, legal counsel, and banks. David Hart, CEO of the BDA, emphasized that Irbisio’s establishment aligns with Bermuda’s ambition to become a global leader in the climate risk solutions sector.

Sergey Buchin, founder and CEO of Irbisio, stressed the significance of financial precision and deep technological understanding in the clean tech sector. The fund seeks to promote sustainable development by aligning with major technological trends and offering de-risked investment opportunities. Insights from the COP28 climate conference have influenced the fund’s financial model to enhance impact and returns.

Bermuda’s focus on sustainability, driven by its vulnerability to rising temperatures and the presence of many reinsurance companies, makes it an ideal location for Irbisio. The fund promises significant CO2 reduction and other environmental benefits while ensuring financial returns and adhering to rapid completion timelines.

Irbisio plans to invest in high-return projects with defined exit strategies, ensuring quick capital turnaround. The fund is supported by a substantial project pipeline, encompassing energy conservation, sustainable energy generation, and usage optimization. Irbisio also commits to following industry best practices and maintaining robust and accountable investment operations.

In a related development at COP28, Howden Group founder and CEO David Howden addressed the pressing issue of climate risk management and protection for vulnerable countries during his keynote address for the major event.

News Americas, NEW YORK, NY, Tues. Dec. 19, 2023: On the heels of threats by Venezuela, the International Monetary Fund (IMF) has released its latest report on Guyana’s economic outlook, forecasting a substantial surge in oil revenues for the country.

According to the report, Guyana’s oil revenues are expected to reach a staggering US$11 billion (GY$2.3 trillion) by 2028, driven by royalties and profit oil generated from six floating production, storage, and offloading (FPSO) vessels operating in the prolific Stabroek Block.

This estimated amount represents a significant 36.5% of Guyana’s gross domestic product (GDP) and showcases the nation’s growing economic potential in the oil sector. The projections for oil revenues are meticulously calculated based on expected earnings from oil exports, aligning with the guidelines outlined in the 2021 Natural Resource Fund (NRF) Act.

Despite the rapid expansion of the oil industry, the IMF’s report highlights that Guyana’s economy has not shown signs of inflationary pressures or overheating. This steady growth trajectory is attributed to Guyana’s commitment to fiscal prudence and disciplined fiscal management.

The report anticipates a moderation in fiscal impulses and outlines a path toward achieving a zero overall fiscal balance by the year 2028, emphasizing the nation’s dedication to responsible economic policies.

Guyana has set ambitious goals for its oil production, aiming to exceed one million barrels per day from six FPSOs by 2027. Vice President Bharrat Jagdeo expressed confidence that the substantial oil revenues will enable the country to address its debts effectively.

The recent commencement of operations for Prosperity, the third FPSO, alongside the existing Liza Destiny and Unity vessels, marks a significant milestone in Guyana’s oil production journey. Furthermore, the upcoming launches of the ONE GUYANA, Errea Wittu, and Jaguar FPSOs are expected to further boost the country’s oil production capabilities.

By Cristina Caus

News Americas, FORT LAUDERDALE, FL, Tues. Dec. 19, 2023: The Gas-to-Energy project is an embodiment of Guyana’s mission to transform its historically underperforming economy, now one of the fastest growing, into a world-class and competitive environment.  The GtE project represents one of the largest single-expenditure projects in the history of Guyana.

Planned as a 25-year joint venture between the Government of Guyana and ExxonMobil with a cost of approximately US$ 2 billion, the project is designed to supply natural gas from the Stabroek Block through a 12-inch diameter pipeline that will run 220km to the onshore Wales Development Zone on the West Bank of Demerara, connecting to a facility that is slated to encompass a 300 MW natural gas power plant and a natural gas liquids (NGL) plant. When completed, these two facilities will be capable of producing at least 4,000 barrels per day, including the fractionation of liquefied petroleum gas (LPG).  The NGL processing plant will treat the gas to extract NGLs for commercial use, and the power plant will use the dry gas to generate electricity for domestic use. Later developments could include plants for producing ammonia and urea.

 The Project is one of a kind and it consists of two phases:1.Pipeline installation coming at an estimated cost of  US$1.3 billion. Exxon is going to manage the installation of the subsea pipeline on the seafloor to transport the natural gas from the Liza field to the onshore pipeline, with a minimum of 50 million standard cubic feet of gas per day capacity (mmscfd) and a maximum capacity of 130 mmscfd. and 2.The construction of the gas power plant and the integrated NGL plant, managed by the US-based partnership CH4/Lindsayca at a cost of approximately  US$759 million.  The project is expected to come online by the end of 2024.

In its anticipation,  the Petroleum Management Programme under the Ministry of Natural Resource of Guyana, released the Gas Monetization Strategy which serves as a discussion paper for citizens and experts to share their opinions with the government on the project and the strategy to manage Guyana’s substantial gas resources.

Given the size, scope and cost of the project, some are skeptical and find it difficult to determine the feasibility of it; and there are aspects that need to be analyzed.  

Is Guyana Truly Ready For A Project Of This Scale?

Resource wise – yes. The Guyana-Suriname basin is known to contain large amounts of natural and associated gas as well as crude oil. Gas accounts for about 25% of the 11bn barrels of oil equivalent (boe) in recoverable reserves discovered at Stabroek.  According to estimates, the  proved gas reserves are at 17 trillion cubic feet (tcf). , The associated gas is currently used for pressure maintenance and enhanced oil recovery, but it is considered to be trapping a substantial quantity of oil, therefore limiting the oil exploration and production capabilities as well.

Infrastructure-Wise Guyana Hasn’t Been Ready For This Sudden Oil And Gas Turn Of Events To Start With

The country was in a similar dilemma a few years ago when it started offshore operations. It didn’t have the adequate infrastructure, financial and workforce capability to embrace this sprouting industry and that’s where a leap of faith was required. Up to date, ExxonMobil and its contractors spent more thanUS$900 million with locals since the first discovery in 2015. By the end of 2022, the company and contractors employed over 5,000 Guyanese workers, representing more than 65 percent of the overall workforce in the local oil and gas industry.

With no experience or offshore infrastructure, Guyana just in four years managed to have acquired two FPSOs (at an approximate cost of about $1B each)  actively operating in its deep waters, with one more expected to be delivered by the end of 2023 and three more targeted by the end of 2027. That’s a total of six floating production storage and offloading vessels, quite an impressive portfolio of assets for a beginner like Guyana, and a solid investment for a supermajor like Exxon. This agile responsiveness to its petroleum infrastructure and workforce needs integrated with foreign partnerships, investments and skills transfer is a harbinger of how Guyana can manage complex infrastructure projects, such as the Gas to Energy one and how competitive it can get on the global market.

The costly infrastructure investments if coupled with the right maintenance practices have a quite long lifespan, between 30-50 years for the Gas power plants and the NGL plants and an average of 50 years for the natural gas transmission pipelines; long enough to pay off the hundreds of millions of dollars it takes to build them and longer in comparison for example with the solar power plants that on average would last 25-30 years, wind farms that  have an expected lifetime of around 20 years, while energy storage last roughly 10 years.

Financially Wise – Yes, But This Requires Caution

In the past two years the global events have been favoring the commodity prices therefore creating more oil revenues for the oil producing economies, including Guyana, who has pocketed about  US$1.24 billion in revenue from oil sales and royalties annually since first oil production in 2019.

The key to economic stability for a country is a balanced wealth management and distribution strategy. Often happens that developing countries who get blessed with wealth from resources initiate generous spendings, expensive projects and acquisitions which mostly lead to exaggerated loans and burdening debts. That’s the case of many oil exporters, eight out the top 35 net oil exporters from 1979 to 2010 have defaulted on their debt during that period, some of them are Argentina, Sudan, Iran, Iraq, Russia, Mexico, Egypt. 

While considering a project of this scale, it is important to pay attention to maintaining a good-debt-to GDP ratio. The relationship between abundant fossil fuel reserves and rising debt is no coincidence and many of the countries facing debt distress have significant oil and gas reserves. Many oil exporting economies get trapped in this vicious cycle where they benefit from increasing oil revenues which increases the value of their reserves and boosts their credit ratings, enabling them to get more loans, when the oil prices drop the debt is heavier pushing the economy to expand the fossil fuel sector more and rely more on the  revenues it generates, which gets attractive for creditors but becomes a heavy burden for the economy, as it gets more indebted. 

As a rule of thumb, a  good-debt-to- GDP ratio is usually under 60 percent. Guyana was at 27.80 percent in 2022, expected to reach 30.00 percent of GDP by the end of 2023.  According to the IEEFA Guyana’s debt will skyrocket from US$621 million in 2023 to an overwhelming US$1.7 billion in 2027, primarily fueled by the Gas-to-Energy initiative. On the other hand, Guyana’s GDP is forecasted to see a tremendous growth as well, reaching US$ 29.94 billion by 2028, placing it somewhere in the 58% debt to GDP ratio.

The Oil & Gas Debt – Vicious Cycle

Figure: The relationship between abundant fossil fuel reserves and rising debt

If we are to do a quick math around the Gas to Energy project, the pipeline installation by Exxon will commit Guyana to pay annually for the next 20 years a fixed rate of US$55 million to Exxon, this amount is the amortized cost of US$1 billion for 20 years at a discount rate. The natural gas and the LNG plant facilities  are to be financed by the government, for 2023 about $US 200 million were allocated from the budget  while the other portion of approximately US$646 million is pending financial approval the government is seeking from EXIM.

The flip side of the coin is that currently about 90 percent of Guyana’s power generation capacity comes from heavy fuel oil. The GtE project would be saving about US $11 million that is used to pay for fuel every single month in addition to reducing electricity prices by an estimated 50 percent, which currently is at a rate of 15 US cents per kilowatt hour. Also, according to the Winston Brassington, Head of the Gas-to-Energy Task Force, it is estimated that the commercialization of the excess NGLs will earn Guyana about US$100 million per year, providing the revenues to meet the annual payments and make a profit.

We should also consider the potential revenues from branching out the GtE project as highlighted in the Gas Monetization Strategy. The production of fertilizers, such as ammonia, can contribute enormously to the diversification of the project and the economy. Natural gas is the primary feedstock for ammonia, the building block for all nitrogen fertilizers, and accounts for 70-90% of production costs. If we take a look at the fertilizer market, it is roughly increasing by 12 percent compared to the previous years and it is forecasted to surpass US$ 240 billion by 2030. Trinidad and Tobago can serve as a good example of how profitable it can become, as in 2021, T&T exported US$1.74 billion in ammonia, the most exported product in the country and placed the nation as the second largest exporter of ammonia in the world. The Russia- Ukraine war has destabilized the fertilizer market globally, as they both were large fertilizer producers, therefore creating an opportunity for newcomers as Guyana.

There has been constant discouragement addressed by some global organizations and individuals towards Guyanese pursuit of its fossil fuels resources from the beginning. The kind of” in the right place at the right time” opportunity isn’t presented every day and wouldn’t Guyana have taken the risk to invest in its oil exploration and production it would not become the fastest growing economy in the world in few years only blessing its citizens with a phenomenal GDP per capita growth from about US$6.950 in 2020 to $US 20.000 in 2022 with a forecasted 80.74 percent continuous increase to about US $37.000 by 2028.

Some are worried that this project will indebt the country for many years to come and some even claim, as the U.S. based Institute for Energy Economics and Financial Analysis (IEEFA), that the project is “unnecessary and financially unsustainable”,  advising that Guyana could use its oil profits for a reliable, low-cost rooftop solar solution that would save billions while providing low-carbon electricity to the entire country.

Renewable energy is indeed a good solution developed in parallel, however it is an intermittent variable power and it needs to be balanced with a stable and reliable source, such as the natural gas, which is a low-carbon energy source compared to current HFO being used. Moreover, renewable energy, as solar suggested by the IEEFA, would address a portion of country’s economic challenge, which is energy generation, however, would not create the other economic opportunities as some described earlier.

The massive economic growth in Guyana is creating a huge demand for energy supply and for serious investments in grid modernization, transmission lines and substations for integration.  Nevertheless, the fact that Guyana has natural gas in abundance should be considered as a step towards diversification of its energy portfolio and energy security and transition plans, while combined with renewable energy projects.  A healthy approach is required that considers economic expansion into new sectors, development of new projects, reliable partnerships and investments that align with country’s needs and global market demand in a sustainable and financially sound way.

EDITOR’S NOTE: Cristina Caus is an International Economist and Oil and Gas/Energy Consultant and Business Developer. She has a rich, over a decade experience in the oil & gas industry worldwide and holds a master’s degree in international business from FIU.