As an oil-producing nation on one of the steepest production trajectories in this century, it is imperative that we become much more aware of oil matters from different time perspectives. Starting production in late 2019, the Exxon-Hess-CNOOC combine are projected to reach some 1.2 million bpd by 2027 from their Stabroek Block. This will turn our country into one of the continent’s most prominent producers, surpassed only by Brazil and Mexico. By that time, operators in other blocks should be adding substantial production numbers to that total. Even if no more oil is discovered – which is very improbable – the 11 billion barrels should be enough for another 25 years at the peak production rate.
There have been concerns raised by a handful of “climate activists” about our policy to produce oil as fast as possible. But the general consensus is that we should utilise the revenues from the admittedly small percentage (14.5%) of the total revenues (until expenses are amortised, when it will increase dramatically) to create a diversified, sustainable economy that would facilitate all Guyanese to live in dignity and comfort. Another reason for the robust production programme is that, while it is a fact that continued fossil fuel’s utilisation at present rates will precipitate catastrophic climate-related disasters, the global community – especially the historically largest polluters – have promised to adopt equally robust programmes of generating their energy requirements from “renewables” to reach their “net zero” commitments, which would eventually lower the value of petro-fuels. For the record, Guyanese should know that, because of our vast carbon-sequestering forests, wind, solar and hydro power potential, we can still keep our net carbon zero commitment at far greater levels of petroleum production than are presently projected.
In the near term, however, events in Europe after the war in Russian-Ukraine, launched by Russia in Feb 2022, have created a new scenario that has roiled prices in the oil markets to present new challenges to producers like us. With sanctions imposed by the West on Russia, which is the second largest exporter of crude oil – just behind Saudi Arabia – prices have remained very high as the supply chain has been severely disrupted. Additionally, Russia and Saudi Arabia have imposed unilateral cutbacks in production – which they recently reaffirmed – to keep the prices at those new levels – even as most developed countries have not been keeping their commitments to switch to renewables and reduce oil/fossil fuel consumption.
As a result of these factors – even though the Biden Administration has drained 240 million barrels of oil from US reserves – crude oil prices have risen by some 30% since June, and are hovering near that US$100/bbl Brent light. Last week, JPMorgan Chase speculated that crude is about to rise much higher, because they project a staggering 7mmb/d deficit by 2030. Now, while this is good news for us, as our revenues will rise proportionately, there are also some challenges created. For one, the dollar will remain strong, as especially developing countries have to find dollars to pay for their oil. The efforts of Russia, China, and other larger economies to create a competing global currency to the US dollar are not going to bear fruit in the near term, and their acceptance of each other’s currencies for trade would likewise be inconsequential.
What all of this means for us is that while we accelerate the rate of implementation of the major projects that have been earmarked to effectuate our diversification and industrialisation, because such a large percentage of our inputs are imported – such as cement and steel for infrastructure – their prices will rise because of the strong dollar and wipe out much of the value of the increased price of our oil exports. In terms of our exports, which are mainly agricultural, even there our profits will be cut, since pesticides and fertilizers etc will be more expensive.
What all of this means is that as an oil producer, our policy makers will have to adopt a much more nuanced approach, since we will remain price-takers in oil for the duration.
