Focus: Guyana's pick of new US startup faces hurdles to tap vast gas reserves

McDermott International

25/11/2024 11:00

* 
      Fulcrum LNG lacks experience and financial backing,
experts say
    

        * 
      Guyana officials say selection for gas project now
tentative
    

        * 
      Exxon says it alone will decide whether to tap gas
resources 
    

  
    By Curtis Williams and Kemol King
       HOUSTON/GEORGETOWN, Nov 25 (Reuters) - Doubts are
growing over Guyana's pick of a little-known U.S. startup to
craft and develop projects to monetize its vast untapped natural
gas resources that could cost up to $30 billion.
     Year-old Fulcrum LNG faces financing hurdles that could
derail its selection. Ultimately, the South American nation may
end up relying on a consortium led by Exxon Mobil  XOM.N , which
controls all the production in the new energy hotspot. So far
the top U.S. oil producer has focused on oil. 
     Guyana has been pressing Exxon to come up with a plan to
convert its about 16 trillion cubic feet of gas reserves into
valuable exports such as liquefied natural gas (LNG), or
relinquish areas where gas has been discovered so they can be
developed by others.
     When Fulcrum was chosen in June, its founder and former
Exxon executive Jesus Bronchalo said on LinkedIn he was
"delighted and honored" to be selected "to design, finance,
construct and operate the required gas infrastructure."  
    Since then, Fulcrum has not identified any financial
backers, casting doubt over its ability to pull off the work,
and leading government officials to now describe its selection
as tentative.
    "No project has been awarded to anyone. We're in an
exploratory phase," Guyana's Vice President Bharrat Jagdeo told
Reuters last month.
    That is a change from the ministry of finance's description
of the awarding of the contract as among its economic
achievements this year. Guyana's president, who announced the
award, said an agreement, that may or may not include Exxon, was
expected next year.
    Meanwhile, the opposition People's National Congress party
is skeptical about the award.
    Fulcrum LNG "lacks requisite experience and a demonstrated
ability to raise the type of multi-billion dollar finances
required," said Elson Low, an economist and advisor to the PNC.
  
    FULCRUM'S LEVERAGE
    Guyana picked Nevada-registered Fulcrum LNG, which it said
offered "the most comprehensive and technically sound proposal,"
among the 17 bidders, including China's third-largest oil firm
CNOOC  600938.SS , U.S. gas pipeline giant Energy Transfer
 ET.N , and the No. 4 U.S. LNG exporter Venture Global LNG.
    Ira Joseph, an LNG market expert and senior researcher at
Columbia University's Center on Global Energy Policy, said it
would be "very difficult" for a startup to raise the financing
for a multi-billion-dollar infrastructure project.
    "Why isn't Exxon building the LNG plant itself? It is very
hard to raise that kind of money to make a project work,
(Guyana) would have to bring in one of the big players like
TotalEnergies  TTEF.PA  or Shell  SHEL.L ," Joseph said.
    Besides pairing with U.S. oil service Baker Hughes  BKR.O 
and construction contractor McDermott  MCDIF.PK , Fulcrum's
proposal would include financing from the U.S. Export-Import
Bank and the participation of private equity firms and an
environmental partner, the government said.
        The U.S. Export-Import Bank and McDermott did not reply
to requests for comment, and Baker Hughes referred questions to
Fulcrum.
    Bronchalo - who is Fulcrum's CEO, secretary, treasurer,
director and president - and the only other person associated
with the company, the technical director, did not respond to
requests for information. 
    Fulcrum's website does not identify any prior projects, but
claims "extensive experience in origination of new opportunities
to access and capture global LNG markets."
    Guyanese officials now say they chose Fulcrum without first
determining whether it could raise the money to tap the enormous
gas reserves.
    The technical committee that selected Fulcrum was confident
it could raise money for the projects, Jagdeo told Reuters.
"They represented they had the capacity to raise the money." 
    Minister of Natural Resources Vickram Bharrat said
Bronchalo's expertise, having worked at Exxon in Guyana and Asia
for two decades helping to negotiate contracts, swung the
selection in his favor.
    "We don't have the expertise and capability in government,
especially when it comes to gas ... we expect Fulcrum will have
the capability and experience," he said in an interview in
October.
        
    COLLABORATION OR CONFLICT 
    Exxon's consortium with Hess  HES.N  and CNOOC has
discovered more than 11 billion barrels of oil off Guyana's
Caribbean coast since 2015, and produced 500 million barrels of
crude from its Stabroek block since 2019, turning the tiny
country overnight into a significant global oil producer.
    So far, Exxon's only planned use for the gas is a small
gas-to-power project. 
    The project to develop gas independently was conceived as a
way for Guyana to create a new revenue stream apart from the
oil, which is entirely exported. Gas would develop the country’s
manufacturing and food sectors and help make it a regional
energy powerhouse. 
    Last year, the country's take from royalties and fees was
$1.6 billion, compared with $6.33 billion in profit that went to
the consortium.     
    Exxon's Guyana country manager Alistair Routledge told
Reuters the company would make a decision on tapping newer
discoveries containing mostly gas by mid-2025.
    Fulcrum "may have better data and more knowledge than the
government to push Exxon in that direction," said Guyana's vice
president.
    Jagdeo said Guyana wants Fulcrum to work with Exxon, but
would push forward with or without it. 
    If, however, Exxon does not act on the discoveries or
auction the acreage to others willing to develop the gas, Guyana
could claw back some offshore land, he said. 
    The oil major, on the other hand, believes it alone can
decide how to use that gas, a person familiar with the company's
position said, citing the agreement it has with Guyana. 
        "Exxon did indicate that they are interested in the
development of gas, but as the talks continue, we will see how
much commitment is there in regards to gas," Minister Bharrat
said. 
  

 (Reporting by Curtis Williams in Houston
Editing by Marguerita Choy)
 ((Curtis.Williams@thomsonreuters.com; +1 346 324 7560;))