OPINION: A faulty gas compressor on the Liza Destiny floating production, storage and offloading unit in Guyana has led to repeated flaring on ExxonMobil’s flagship project in the burgeoning oil producer for almost a year.
Persistent problems resulted in the equipment being sent back to Germany for inspection and repairs for a second time, meaning it will be several weeks, at best, before the gas injection system is up and running.
ExxonMobil’s plight invites analysis of some wider regulatory issues.
The incidents are occurring in the context of a country that has fallen into the global spotlight as a newcomer to oil wealth.
Long-running consultations with entities such as the International Monetary Fund and the Commonwealth Secretariat were intended to ensure that this impoverished and sparsely populated nation developed an adequate regulatory framework, with safeguards to promote good governance and sustainable development.
Some progress was made, but putting a framework of this kind in place is no simple matter, especially in a nation where politics is charged by ethnic divides and a feverish electoral calendar.
With Guyana’s lawmakers far from ready to approve a Petroleum Commission Bill, a first wave of projects is proceeding under an older framework, without Guyana’s promised new regulator.
Without a mature framework in place, Guyana had little option but to opt for a liberal dose of self-regulation on topics such as flaring.
In the case of the Liza Destiny FPSO, the parties agreed to an overall cap on flaring for a set period.
Statements by Guyana’s Vice President Bharrat Jagdeo suggest that ExxonMobil is likely to breach the proposed cap of 14 billion cubic feet in the given period. He warned of penalties.
Discomfort about flaring in Guyana is not just about environmental concerns. It also reflects demands for Liza gas to be used to generate electricity, replacing dirtier fuels.
These concerns were in evidence in October, when President Irfaan Ali’s incoming administration granted approvals for Payara-Pacora — the third phase of offshore development on the ExxonMobil-operated Stabroek block — and included tougher controls on gas flaring, backed by penalties.
These measures are piecemeal and the increase in flaring also provides Guyana with a reminder of the importance of pushing ahead with promised regulatory reforms more systematically.
Self-regulation is all very well, but some of the uncertainty surrounding ExxonMobil’s duties and obligations stem from agreements being overseen by an environmental protection agency whose director was switched after the elections.
Guyana’s oil revenues are flowing now, and some of those revenues are already available through a consolidation fund, even before the country's new sovereign wealth fund is up and running.
Guyana’s government could use some of this money to facilitate creation of an independent and well-resourced hydrocarbons regulator able to flesh out rules and apply them in an even-handed manner.
For ExxonMobil, it is unfortunate that this episode should tarnish the excellence of the company’s feats in finding and producing oil in a former frontier play, and its efforts to build local capacity and provide jobs.
But these are the times that we live in. A big international oil company flaring gas for a protracted period in a country that burns diesel for electricity will have some difficult questions to answer.
(This is an Upstream opinion article.)