Challenges for Guyana's New LNG Startup Seeking Gas Development

Challenges Facing Guyana's New LNG Startup

There are rising concerns regarding Guyana's recent decision to select a relatively unknown U.S. startup, Fulcrum LNG, for the monumental task of developing its substantial untapped natural gas reserves, an undertaking projected to cost around $30 billion. The startup, which has only been in business for a year, is confronting notable financing obstacles that threaten its selection. The situation has led many observers to speculate that the South American nation may ultimately turn back to established players like Exxon Mobil (NYSE: XOM), which dominates production in this emerging energy hub and has primarily concentrated on oil extraction until now.

Government Intentions and Project Scope

Guyana has been urging Exxon to devise a plan for transforming its estimated 16 trillion cubic feet of gas reserves into beneficial exports such as liquefied natural gas (LNG). Alternatively, they are asking for the relinquishment of areas where gas has been found, allowing these resources to be exploited by other companies.

Upon Fulcrum's selection, its founder, Jesus Bronchalo, an ex-Exxon executive, expressed his excitement on LinkedIn about the opportunity to design, finance, construct, and manage the necessary infrastructure for gas extraction and processing. However, since that announcement, Fulcrum has not yet secured any financial backers, casting doubt on its capabilities. Officials in the Guyanese government have described the selection as provisional, emphasizing that no projects have officially been awarded, indicating the exploratory nature of this phase.

Political Skepticism

The political landscape has witnessed skepticism regarding the award from the opposition People's National Congress party. Economist Elson Low, an advisor to the party, pointed out that Fulcrum lacks the experience and proven ability to secure the billions needed for such large-scale financing.

Understanding Fulcrum's Bid

Guyana reviewed 17 bidders and ultimately chose Fulcrum for its allegedly extensive and technically sound proposal among competitors, including significant firms like CNOOC (NYSE: CEO) from China and U.S. gas pipeline giant Energy Transfer (NYSE: ET). However, experts like Ira Joseph from Columbia University caution against the feasibility of a startup financing a project of this magnitude without the backing of established industry giants.

Joseph questioned why Exxon isn't spearheading the LNG plant development itself, suggesting that to successfully fund such an ambitious project, involvement from substantial energy players like TotalEnergies (EPA: TTEF) or Shell (LON: SHEL) could be critical.

Financing Sources and Partnerships

Fulcrum plans to partner with established entities like Baker Hughes (NASDAQ: BKR) and construction contractor McDermott, with hopes of obtaining financing support from the U.S. Export-Import Bank alongside private equity investments and an environmental partner. However, both the Export-Import Bank and McDermott have not provided comments to the press, and representatives from Fulcrum have remained unresponsive regarding inquiries about their capacities.

Current Situation and Future Prospects

Despite selecting Fulcrum, Guyanese officials admit that they did not first confirm whether the company could raise the necessary funds for tapping their gas reserves. With a shaky start, it remains to be seen how Guyana's decision-making process evolves. Vice President Bharrat Jagdeo mentioned that the technical committee was led to believe that Fulcrum could indeed secure project financing.

Minister of Natural Resources Vickram Bharrat acknowledged Bronchalo's two-decade experience in negotiations with Exxon in various regions as a crucial factor leading to Fulcrum’s selection. There is, however, an urgent need to develop gas independently for Guyana to diversify its revenue streams, which currently rely heavily on oil exports. The introduction of this gas infrastructure is envisaged to enhance sectors like manufacturing and create a regional energy hub.

Continued Developments and Exxon’s Position

Exxon and its partners, including Hess (NYSE: HES) and CNOOC, have discovered over 11 billion barrels of oil off Guyana's coast since 2015 and have already produced around 500 million barrels from the Stabroek block, significantly boosting the country's oil production profile. Nevertheless, Exxon's only current project utilizing the gas is a modest gas-to-power initiative.

In 2022, Guyana's income from royalties and fees reached approximately $1.6 billion, contrasting sharply with the $6.33 billion profits directed to the Exxon-led consortium. With plans for broader gas development, Exxon's Guyana country manager, Alistair Routledge, stated that a decision regarding the burgeoning gas discoveries would likely be made by mid-2025.

Vice President Jagdeo indicated a supportive stance towards collaboration between Fulcrum and Exxon. However, he noted that if Exxon fails to utilize the discovered resources or offer them for development to other interested parties, Guyana could reclaim some offshore territories. The oil giant, for its part, maintains that it retains the sole discretion concerning the utilization of the gas, with ongoing discussions revealing various commitment levels from Exxon's side.

Frequently Asked Questions

What challenges does Fulcrum LNG face?

Fulcrum LNG struggles with securing necessary financing, raising doubts about its capacity to undertake projects worth billions in Guyana.

What are Guyana's intentions with its gas reserves?

Guyana seeks to convert its vast gas reserves into exports like liquefied natural gas (LNG) to diversify revenue and bolster manufacturing sectors.

Why was Fulcrum LNG chosen over larger firms?

Fulcrum was selected due to its technically sound proposal, although its lack of experience raises skepticism.

How does Exxon fit into this scenario?

Exxon currently dominates the gas and oil production landscape in Guyana and has been asked to develop a comprehensive plan for gas utilization.

What could happen if Exxon does not act on gas discoveries?

Guyana could reclaim offshore areas if Exxon does not pursue gas development, potentially allowing other companies like Fulcrum a chance in the energy sector.

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